Creditor Protection for IRAs
This past weekends edition of the Wall Street Journal had a question and answer interview with Natalie Choate – who turns 70 1/2 this year. One question asked was: What accounts will her payouts come from? Part of her response was the following. She plans to take all of this year’s withdrawals from an IRA she funded with annual contributions. That is because it has less protection from creditors than her IRAs holding assets rolled over from employer-sponsored 401(k) plans.
I did not know that the creditor protection differed with IRAs funded with annual contributions vs. IRAs funded with money from a 401(k) rollover.
Is that true? Does it differ depending upon the state of residence?
Permalink Submitted by Alan - IRA critic on Wed, 2016-06-01 19:54
I read that article. One asset protection site describes MA asset protection for IRAs as 7% of the prior 5 years of income, but unlimited protection for rollover IRAs. That probably explains why she kept the rollover IRAs separate from the IRA holding regular contributions. For many states that apply the federal bankruptcy Act to IRA accounts, the limit for contributary or commingled IRA accounts is an inflation adjusted limit which is now in the area of 1.3mm., but BK must be filed in those states. A majority of states provide a complete exemption of IRA accounts from creditors without a BK filing.
Permalink Submitted by Bruce Steiner on Thu, 2016-06-02 15:08
I wished her a happy half birthday, and suggested that she celebrate with half a cake.