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Inherited IRAs are not protected by bankruptcy as determined by the Supreme Court

IRAs are a type of account that people can put money in to save for retirement. There are two main ways of funding an IRA—putting in deposits on your own or rolling over an employer-sponsored plan. That means putting money from a company retirement plan, like a 401(k) or 403(b), into an IRA. IRAs are almost always protected during bankruptcy. That means that a creditor cannot take money out of your IRA to pay back any debts you may owe. This is meant to ensure that people have money for retirement. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) clarified this but left one topic murky—inherited IRAs.

After a person passes away, their IRA can be inherited by their designated beneficiary according to a June 12, 2014 Forbes article. The person who inherits the IRA will receive the remaining funds. In the case that the court heard, someone inherited an IRA, yet did not want creditors to take those funds to pay back bills after she filed for bankruptcy. There are a few differences between regular IRAs and traditional IRAs. Someone can take money out of an inherited IRA with no penalty at any time. Additionally, unlike a regular IRA, one cannot put money into an inherited IRA. Therefore, the Supreme Court found that an inherited IRA is not quite a retirement account and, thus, should not be protected by bankruptcy.

If you are considering filing bankruptcy, then you should consider talking to a lawyer as soon as possible. Jayson Lutzky is a lawyer with over 31 years of experience and an office in the Bronx, New York. The office is conveniently located one block from the 183rd Street stop of the 4 train. Mr. Lutzky offers free in office consultations. If you have any questions about bankruptcy, then set up an appointment by calling 718-329-9500. Visit Mr. Lutzky on the web at www.MyNewYorkCityLawyer.com.

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