Lawsuits – Judgements – Roth IRA

Details: Client is a California Resident, both client and the employer have been jointly named in a lawsuit for an employment related issue; has a Roth Conversion IRA – which is beyond the 5 year holding period and she will be 59 1/2 in early August 2013. I understand that there is creditor protection for IRA accounts up to $1MM, however, what are the rules regarding lawsuit protection? Can an IRA be attached? And if a Roth IRA is attached, since owners are not required to take distributions, can the holder be forced to take distribtuions to satisfy a judgement?



While creditor protection questions can be very complex, here is my take on this. First, this Roth IRA will be fully qualified and tax free in less than one month. However, CA has opted out of the federal bankruptcy Act creditor protection for IRA accounts and CA only provides protection for the amount needed to sustain client’s life style. That is a subjective figure, but the 1mm limits do not apply. Therefore, the Roth can be levied by a successful litigant who is not paid from other funds. How much protection remains is up to subjective court determination. Whatever amount is not protected can be required to be distributed, but at least there will be no taxes due.

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