IRA Vs Roth IRA

Citation: Clark v. Rameker, 573 U.S. (2014)
Argued: March 24, 2014
Decided: June 12, 2014
Decision
The Supreme Court unanimously declared that an inherited Individual Retirement Account (IRA) is not protected by the Bankruptcy Code- they are not treated or regarded as “retirement funds,” which are under the protection of bankruptcy. In explaining their ruling, the court pointed out three major factors that distinguished IRA from other funds protected by bankruptcy. First, under the limitations of section 219 (d)(4) of the IRC, owners of the inherited IRA cannot make contributions into the account as a retirement account. Second, section 408 (a)(6) of the IRC requires the owners of the inherited IRA to take withdrawals annually from the account regardless of whether they have attained the age of retirement or are already retired. Lastly, section 72 (t)(1) of the IRC states that there are no age-related sanctions for withdrawals from these accounts. Therefore, based on the three characteristics, the court held that an inherited IRA does not have legal characteristics of a retirement fund as described by the act.
Facts of the Case
The case involved a couple who filed a bankruptcy declaration in 2010. In this declaration, they claimed that remaining balance of their inherited IRA, which was approximated at $300, 000 and inherited from her parents back in 2001, should be protected by 11USC 522(b)(3)(c) of the U.S. Bankruptcy Code. This code protects various types of retirement accounts.

However, William Rameker, a bankruptcy trustee who was working for two creditors, Zinije and Resul, filed a motion to challenge the Clarks’s claim on the basis that the court should not treat an inherited IRA as a retirement fund for the purposes of the Bankruptcy Code protection. Therefore, the court weighed the facts of the case and the key characteristics of the inherited IRA and affirmed the ruling of the Court of Appeal that inherited IRA cannot be regarded as retirement funds; hence the assets were available to creditors.
Work Cited
Clark v. Rameker, 573 U.S. (2014)