Court Rules Inherited IRAs Not Protected

A recent ruling by the US Supreme Court has found that inherited IRAs are not protected in bankruptcy.

Bankruptcy (Photo credit: LendingMemo)

The opinion, issued in June, has far reaching implication, according to a story in Forbes. It found that Heidi Heffron-Clark, who inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later, could not shield that money from creditors.

In general, IRAs historically have been protected from creditors in bankruptcy to ensure that people have money to live on during retirement. In this case, the court found that inherited IRAs are different from those you set up and fund yourself. Among the reasons are that you can’t put more money into an inherited IRA and you can take money out at any time without penalty.

The decision does not affect spouses as long as they roll over IRAs inherited from their deceased spouses into their own IRAs.

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