IRA rollover and beneficiary question for State of PA – Creditor proof / non spouse beneficiary

Submitted by David Kay on Fri, 2022-07-15 15:47

Good morning forum –

I am a financial advisor working with a client who is married (bad marriage) and living in PA. Client has an older cash balance account (pension plan) from a former employer in NY state. Client is considering rolling that older pension plan (fully vested) form the former employer into a new IRA rollover here in the state of PA.

Client’s spouse has lots of legal and financial problems and client would like to name the couples adult children as beneficiaries.

Question 1 – If the client rolls a pension plan into a new IRA rollover does the client still have protection from creditors like ERISA sponsored qualified plans have? State of PA…This account is under $1,000,000.

Question 2 – Can the client name someone other than a spouse as beneficiary of an IRA in the state of PA (for example adult children) and does the account owner (IRA owner) need to get spousal consent to do so? I do know that this client WILL have to get spousal consent to roll their cash balance account out from the former employer’s plan in the state of NY.

Thank you in advance for your comments and help!!

DK



Submitted by Alan - IRA critic on Fri, 2022-07-15 16:28

  1. PA provides full creditor protection for IRAs except for regular contributions over 15k within a year of filing BK. A rollover from a qualified plan is not subject to this limit or to any dollar limit. The 1,000,000 limit (with inflation adjustments this limit is now around 1.5mm) therefore only applies to regular contributions made within 1 year of filing BK if filed in an applicable court. I can’t advise whether spouse’s financial problems would result in both spouses filing for BK, but at least the rollover should be protected either way.
  2. No spousal consent for IRAs is required in common law states like PA, so client can name any beneficiary she wishes to.


Submitted by David Kay on Sat, 2022-07-16 15:14

Thank you Alan! Much appreciated ! 



Submitted by William Tuttle on Fri, 2022-07-15 16:51

  1. No, only ERISA Title I qualified plans receive unlimited creditor anti-alienation asset protection. However, rollover assets from an employer plan to a rollover IRA does receive unlimited federal bankruptcy protection. Contributory IRA assets are limited to $1,512,350 (4/1/2022) federal bankruptcy protection. IRA creditor protection is subject to state law. PA protects IRA contributions up to $15K/year and unlimited rollover amounts from ERISA qualified plans. Bottom line: No ERISA anti-alienation asset protection, but unlimited PA asset protection. Note: This follows the individual’s domicile. A move to a state with less protection would be subject to that state’s protections.
  2. I am not well versed in spousal rights.


Submitted by David Kay on Sat, 2022-07-16 15:15

Thank you!!



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