The U.S. Supreme Court recently made an important decision regarding Individual Retirement Accounts (IRAs) that have been inherited by someone who then files for bankruptcy.

At issue was an IRA account that the bankruptcy filer had inherited and that contained $300,000.  Bankruptcy law allows those filing for bankruptcy to keep IRA accounts, so long as those accounts qualify as “IRAs” under tax law – this is the case in New Jersey.

However, when the owner of an IRA account passes away and someone else inherits that IRA, that account loses the characteristics that make it an “IRA” under tax law and the account becomes more like an ordinary pool of money.  Because of these lost characteristics upon inheritance of the IRA, the U.S. Supreme Court decided that bankruptcy filers cannot keep all of the money in a very large inherited IRA account, such as the $300,000 involved in this case.

Remember, this decision does not affect bankruptcy filers’ own personal IRA accounts, which generally remain exempt.  It’s a good idea to talk to a bankruptcy attorney about your retirement accounts before filing for bankruptcy to ensure that they are protected through your case.  I offer a free consultation for people in New Jersey who are considering bankruptcy.  Call me at (201) 676-0722.

Photo by www.aag.com.