According to Forbes Magazine, an IRA that was inherited is not protected as an asset in a bankruptcy. The U.S. Supreme Court ruled on this matter on June 12^th, 2014. A woman with the initials H.H.C. inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later. The Supreme Court unanimously ruled that this woman could not shield the IRA account from her creditors in the case Clark v. Rameker.

To make their decision, the court looked at key legal distinctions between IRAs that are inherited and those that an individual sets up and funds for himself or herself. When an individual sets up his or her own IRA, the funds are collected through annual contribution or by rolling over assets from a company plan.

Inherited IRAs are different. Those that inherited the IRA cannot put additional funds into their account. They can take money out at any time without penalty. In most cases, the non-spousal IRA heir is required to withdraw the entire amount of the IRA within five years of the original owner's death or take out the minimum amount each year starting with December 31^st of the year that he owner of the IRA account. These special restrictions make it so that the court does not need to regard an inherited IRA with the same regulations and protections as a personal IRA.

The Supreme Court explains that personal IRAs are protected from bankruptcy because they are set up by an owner to ensure that the owner has money available during retirement. An inherited IRA was not set up as a precaution for the future. Therefore, creditors should be able to access the money from this inherited IRA to pay for your debts.

If you want more information about protected assets and unprotected assets in bankruptcy, don't hesitate to talk with a local bankruptcy attorney at the firm today!