Inherited IRA is Exempt “Retirement Account”

Estate Planning

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Doeling v. Nessa (In re Nessa), 426 B.R. 312 (B.A.P. 8th Cir. (Minn.) 4/9/10) (Schermer, J.).

Case Summary:

Inherited IRA is Exempt “Retirement Account”

The Eighth Circuit BAP affirms the bankruptcy court’s conclusion that a retirement account the debtor inherited from her father is exempt under § 522(d)(12). To qualify for exemption, funds must be “retirement funds” in an account that is exempt from taxation under specified sections of the Internal Revenue Code. The Chapter 7 trustee objected to the debtor’s exemption because the inherited funds were not contributions for retirement by the debtor and, as such, were subject to different distribution and taxation than the debtor’s own IRA. Affirming the bankruptcy court, the BAP rejects these arguments. Section 522(d)(12) makes no distinction between a debtor’s own IRA and an inherited account, and does not specify that the retirement fund must be the debtor’s. Similarly, the Internal Revenue Code does not exempt IRAs from taxation based on different distribution rules, but rather provides that any IRA is exempt from taxation.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

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