Can creditors garnish money from an inherited IRA?
Summary
Inherited IRAs (Individual Retirement Accounts) do not have the same legal protections from creditors as regular retirement accounts owned by the original saver. Federal rules and court decisions mean these accounts may be vulnerable to creditors, especially in bankruptcy, and rules can differ by state.Key Facts
- Regular IRAs and 401(k)s are generally protected from creditors by federal law.
- Inherited IRAs are subject to different rules and are less protected in bankruptcy cases.
- The Supreme Court ruled in 2014 that inherited IRAs do not qualify for the same bankruptcy protections as original retirement accounts.
- State laws vary widely on how well inherited IRAs are protected from creditors outside of bankruptcy.
- Creditors usually must sue and get a court judgment before going after funds in an inherited IRA.
- Money withdrawn from an inherited IRA loses protection and can be seized by creditors.
- People with inherited IRAs and debt problems should talk to a lawyer or financial expert familiar with their state’s rules.
- Debt settlement is a possible way to handle debts and protect inherited IRA assets.
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