creditor protection for IRAs and decedent IRAs
NY resident is wondering if the protection against claims of creditors is different under the follwing two scenarios
-deceased husband was sole proprietor with a profit sharing plan.
1) roll the plan into a decedent IRA for widow’s benefit
2) name the IRA as her own
Thanks
Permalink Submitted by Alan Spross on Thu, 2012-01-05 21:50
NY has opted out of the federal bankruptcy law in favor of NY statutes for IRA creditor protection. While there have legal decisions in some other states eliminating creditor protection on inherited IRAs, those decisions addressed non spouse inherited IRAs. In some areas of the tax code, spousal inherited IRAs are not treated as inherited (eg rollover rules), so I doubt there is much exposure in NY if the IRA is not rolled over for a period of time. Assuming ownership of the IRA would probably further reduce whatever small exposure exists to creditors on spousal inherited IRAs.
Depending on the spouse’s and decedent’s ages, the advantages of keeping the IRA titled as inherited will eventually disappear. Once those advantages disappear, the surviving spouse should assume ownership.
Permalink Submitted by Thomas Ferry on Tue, 2012-01-10 18:02
Thanks
Widow has decided to roll the profit shairng plan to her own IRA, rather than an inherited IRA. She also owns her own business and has a separate SEPP that she contributes to regularly. Is it all the same if she rolls the profit sharing plan, for which she is the beneficairy of, to her SEPP instead of a new IRA?
Permalink Submitted by Alan Spross on Tue, 2012-01-10 18:33
Yes. NY does not treat a SEP IRA any different than other IRA types for purposes of creditor protection.