According to Wisconsin bankruptcy judges, the money in inherited individual retirement accounts is subject to collection by creditors and not protected by Wisconsin or federal exemption laws.Federal bankruptcy laws and state law permit individuals to claim certain property as exempt from the reach of their creditors. Many types of retirement accounts and benefits are protected by these exemptions. In his May 10, 2011 decision in In re Clark, Case No. 10-18035, Bankruptcy Judge Robert D. Martin concluded that an inherited individual retirement account can be reached by the heir’s creditors, and that neither federal nor state exemptions protect the monies in an inherited IRA.Under federal bankruptcy law, for a retirement account to be safe from creditors, (1) the monies must be “retirement funds” and (2) those retirement funds must be in an account exempt from taxation under one of various provisions of the Internal Revenue Code. Judge Martin concluded that the monies in an inherited IRA are not “retirement funds” to the person who inherited them, and are not exempt from taxation under any of the applicable Internal Revenue Code provisions. Under state law in Wisconsin, certain accounts or amounts payable under pension, IRA and other accounts and plans or contracts… Read full this story
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