Minnesota Bankruptcy Case: Inherited IRA is Exempt

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

Minnesota Bankruptcy Case:

In re Nessa, 2010 WL 128313 (Bankr. D. Minn. 1/11/10) (O’Brien, J.).

Case Summary:

Inherited IRA is Exempt

The trustee objected to the chapter 7 debtor’s claimed exemption of an inherited IRA under 11 U.S.C. § 522(d)(12), arguing that because the IRA was inherited by the debtor, it did not qualify for exemption under the statute. The court found that the plain language of the statute allowed the debtor to exempt the IRA. 11 U.S.C. § 522(d)(12) provides an exemption for “Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457 or 501(a) of the Internal Revenue Code of 1986.” The debtor’s IRA was inherited from her father. It was a section 408 IRA, which was transferred to another trustee upon her father’s death. However, the account was not “rolled over.” The recipient account remained in the name of the decedent and was not legally owned by the debtor. Because the proper transfer of funds to another trustee upon the death of the original owner protects the IRA from taxation under section 408, the debtor was entitled to exempt the IRA under 11 U.S.C. § 522(d)(12).

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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