Forbes today reported a state court case that may upset the established order when it comes to asset protection for IRA’s. Federal legislation has exempted up to $1,000,000 of IRA assets from attachment by creditors. When I as a financial planner discuss the advisability of rolling money out of a qualified savings plan (401K, 403B or 457), one reason cited, tho not the top reason, is asset protection. Qualified plans are more exposed to collection by creditors than IRA’s. But wait….
Florida is known to have some of the strongest asset protection for dead beats in the country. Recently, when consulting an expert on the topic for a California client, the expert jokingly suggested the client relocate to the Sunshine State! After all, isn’t that what O.J. did? So it is news that Florida’s Second District Court of Appeals recently ruled that an inherited IRA is not protected from creditors. Apparently, the Court felt there was sufficient precedent in Federal statute and rulings from other states to treat an inherited IRA differently from a contributory IRA. I discuss these distinctions in the Financial Education section of our web site, www.trustedfinancial.com, for those interested in the topic.
The uptake from this event is that when financial advisors gleefully inform bereaved children that their recently deceased parent’s IRA can continue to provide years of tax shelter, via use of a “Stretch IRA”, the advisor better inquire about uncollected debt or the risk of future actions prior to floating this idea.
Click here to read the Forbes article
