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IRAs Protected From Bankruptcy Creditors

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CNN Money reported today that the Supreme Court unanimously ruled that Individual Retirement Accounts (IRAs) are protected from creditors in bankruptcy proceedings. This sets the precedent that adds IRAs into the same class of assets as Social Security benefits, pensions, 401k, and “benefits tied to age, illness or disability” that are all protected.

This is important because just as Congress gave more power to creditors, the Supreme Court has taken some of it away. The court published a 14-page opinion (courtesy of the Legal Information Institute at Cornell) which details the reasoning behind it but essentially the Supreme Court decided that IRAs are exempt from the bankruptcy estate because it fulfills the two requirements needed for an asset to be exempt: a right to receive payments based on age (yes) and are similar to plans cited in the law (yep!).

I don’t think it’s ground breaking or monumental, because I consider an IRA as in the same class of assets as 401k’s, social security, and pensions; but it’s good to have all the bases covered.

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