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Inherited IRA funds not considered ‘retirement funds’

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The Supreme Court of the United States unanimously held Thursday that funds contained in an inherited individual retirement account do not qualify as “retirement funds” within the meaning of a bankruptcy exemption.

Justice Sonia Sotomayor delivered the opinion for the court, which affirmed the 7th Circuit Court of Appeals. She noted three legal characteristics of inherited IRAs led the court to conclude the funds held in such accounts are not objectively set aside for purposes of retirement.

“First, the holder of an inherited IRA may never invest additional money in the account. Inherited IRAs are thus unlike traditional and Roth IRAs, both of which are quintessential ‘retirement funds.” She wrote. “Second, holders of inherited IRAs are required to withdraw money from such accounts, no matter how many years they may be from retirement. … Finally, the holder of an inherited IRA may withdraw the entire balance of the account at any time – and for any purpose – without penalty.”

The decision comes in Clark v. Rameker, 13-299, in which an IRA was inherited by a daughter who later filed for bankruptcy. Heidi Heffron-Clark argued the inherited IRA was still a retirement fund, and therefore, was exempt from creditors under Section 522 of the U.S. Bankruptcy Code. The 7th Circuit held that when an IRA was inherited by someone other than the owner’s spouse, it was no longer exempt from creditor’s claims.

Sotomayor also noted that the possibility that some investors may use their inherited IRAs for retirement purposes does not mean that the inherited IRAs bear the defining legal characteristics of retirement funds.

“Were it any other way, money in an ordinary checking account (or, for that matter, an envelope of $20 bills) would also amount to ‘retirement funds’ because it is possible for an owner to use those funds for retirement,” she wrote.

 

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  1. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  2. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

  3. I will agree with that as soon as law schools stop lying to prospective students about salaries and employment opportunities in the legal profession. There is no defense to the fraudulent numbers first year salaries they post to mislead people into going to law school.

  4. The sad thing is that no fish were thrown overboard The "greenhorn" who had never fished before those 5 days was interrogated for over 4 hours by 5 officers until his statement was illicited, "I don't want to go to prison....." The truth is that these fish were measured frozen off shore and thawed on shore. The FWC (state) officer did not know fish shrink, so the only reason that these fish could be bigger was a swap. There is no difference between a 19 1/2 fish or 19 3/4 fish, short fish is short fish, the ticket was written. In addition the FWC officer testified at trial, he does not measure fish in accordance with federal law. There was a document prepared by the FWC expert that said yes, fish shrink and if these had been measured correctly they averaged over 20 inches (offshore frozen). This was a smoke and mirror prosecution.

  5. I love this, Dave! Many congrats to you! We've come a long way from studying for the bar together! :)

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