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US Supreme Court ruling on Bankruptcy and IRAs

This mainly affects states in which they weren't already protected (apparently only a small subset of them), but the Supreme Court ruled today that funds in IRAs are "exempt under federal bankruptcy law to the extent that they are necessary for the debtor's financial support".

I'm not sure exactly what constitutes that second clause - does it, say, not protect IRA money belonging to a working

30-year-old?

Nevertheless, it's an interesting ruling and, if anything, simply strengthens the case for putting as much into one's IRA as possible in general.

One of many articles you'll see about this starting to appear:

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Reply to
BreadWithSpam
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The Wall Street Journal April 5, 2005 issue discusses the ruling on page D1.

Reply to
beliavsky

Yep.

Mentions the bankruptcy law having a cap on protected assets (a million bucks).

Interesting thing about the ruling - according to the articles I've read, they key to the ruling was that In rejecting the lower-court ruling, the Supreme Court emphasized that unlike savings accounts, early withdrawals from IRAs trigger 10% tax penalties. "That penalty erects a substantial barrier to early withdrawal," Justice Clarence Thomas wrote in the court's opinion. "Funds in a typical savings account, by contrast, can be withdrawn without age-based penalty."

If that's the basis for the protection of IRA assets, it would appear, to me, to not protect contributions to a RothIRA, which can be withdrawn without penalty (not the *earnings* in the Roth, but original contributions).

It should be interesting to see how this ruling filters down in the details.

Reply to
BreadWithSpam

I had the same thought. Roth contributions (not to be confused with conversions) can be withdrawn at any time without penalty. I'd guess that CCH and RIA will issue some informed speculation on this issue in the near future.

MTW

Reply to
MTW

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