The Supreme Court will decide. Appeals Courts are divided over whether an individual who inherits an IRA and later goes bankrupt can keep the IRA’ assets out of his or her bankruptcy estate. Under current law, up to $1,245,475 in the debtor’s own IRA is exempt from creditors.
Failing to comply with retirement plan rules cost a business owner dearly. Bankruptcy creditors an seize his plan assets, and Appeals Court decides in a case where he set up a profit sharing plan for his company and caused the plan to engage in several prohibited transactions. That cost the plan its tax-qualified status, in the Court’s view, and as a result, the assets no longer were exempt from creditors when the owner later filed for bankruptcy. The same goes for assets he rolled over from the plan to IRA’s after he made the prohibited transactions (Daniels, 1st Cir.).