IRA inheritance creditor protection

Submitted by W Dobroski on Sun, 2023-11-19 23:07

If for possible future creditor protection issues (none currently), a spouse keeps an IRA inheritance (no longer an IRA) in a separate, not commingled account does that limit the couple’s ability to file a joint tax return?
Or is that simply like a bank account in one name yet reported on a joint tax return?
But if so and reported on a joint tax return, does that then become a commingled account, cancelling out any creditor protection?



Submitted by Alan - IRA critic on Mon, 2023-11-20 00:13

  • About 10 years ago the Supreme Court ruled that non spouse inherited IRAs will not be treated as retirement funds (Clark v. Rameker) and therefore will no longer have federal protection in bankruptcy. As a result, a few states adopted statutes providing state protection for inherited IRAs. While this would make the state of residence important, once the inherited IRA has been distributed, the funds no longer receive any IRA based creditor protection. While the distributed funds are still separate property of the beneficiary if retained in an uncommingled separate account and not marital property, your analogy of a separately titled bank account is correct in that it has no affect on filing joint tax returns, but any IRA based creditor protection if the inherited IRA ever had such protection in the applicable state, ended with the distribution from the inherited IRA. 
  • Clark v. Rameker also opened the flood gates with respect to inherited IRAs in general. Since they were no longer treated as retirement accounts of the non spouse beneficiary, Congress felt they were fair game for ending the stretch RMDs for most beneficiaries and passed the Secure Act in 2019 which limited the stretch to 10 years for most non spouse beneficiaries, which accelerated the tax bills due to the IRS. The IRS is still struggling to finalize their Secure Act Regs, nearly 4 years after the Secure Act was passed.


Submitted by W Dobroski on Tue, 2023-11-21 15:43

Thanks very much for that info Alan



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