As you’re probably aware, an Individual Retirement Account, or IRA, is a type of savings account primarily used in preparing for retirement. Monetary contributions to traditional IRAs are tax-deductible, making them an attractive option for retirement.
As with most assets, IRAs are transferable to a named beneficiary upon death. When transferred, the IRA is referred to as an inherited Individual Retirement Account.
In bankruptcy, traditional IRAs are considered exempt under Florida law. This means that any assets you have in an IRA cannot be touched by your creditors. (As a caveat, you can typically contribute $5000 to $6000 per year to your IRA, depending on your age. So, you can’t put all your assets into an IRA and then declare bankruptcy.) Under the old version of Florida law, only traditional IRAs were considered exempt; creditors could, in fact, go after inherited IRAs.
Under new law enacted in 2011, creditors cannot go after inherited IRAs. The new law essentially provides that an inherited IRA enjoys the same protection from creditors that the original IRA held. This is good news for estate planning purposes; now you can establish an IRA without worrying that a beneficiary might not be able to utilize the money in the account. Further, if you’re thinking about bankruptcy, you may be relieved to know that an inherited IRA will be protected.
If you’re thinking about filing bankruptcy, contact us for more information on how to properly protect your assets.