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Oklahoma law, U.S. Supreme Court differ over status of inherited IRAs

McAfee & Taft’s Jim Prince discusses how Oklahoma law exempts retirement funds in bankruptcy, and a recent ruling by the U.S. Supreme Court that could threaten exemptions on certain inherited IRAs.
by Paula Burkes Modified: September 4, 2014 at 11:00 am •  Published: September 3, 2014

Q&A with Jim Prince

Retirement funds may be exempt

in case of holder’s bankruptcy

Q: The U.S. Supreme Court recently weighed in on whether certain assets are exempt from bankruptcy. How are assets — specifically retirement funds — typically treated in bankruptcy?

A: When an individual files for protection under the federal Bankruptcy Code, the individual’s assets are generally available to be used to pay creditors. However, the Bankruptcy Code exempts certain categories of assets, thereby making them available to the debtor. The code provides two basic categories of exempt assets: federal statutory exemptions and exemptions provided for under the law of the state where the bankruptcy proceeding is filed. A bankrupt person is permitted to choose the category of assets that will be applied in his/her bankruptcy unless applicable state law indicates that the state law exemptions must apply. In addition to these categories, the Bankruptcy Code provides an exemption for retirement funds that are in an account or a fund that is exempt from taxation. IRAs are exempt from taxation under Section 408 or 408A of the Internal Revenue Code. So, in Oklahoma, IRAs may be exempt under either state law or under the federal protection provided for retirement funds under the Bankruptcy Code.

Q: What did the U.S. Supreme Court specifically say about inherited IRAs?

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by Paula Burkes
A 1981 journalism graduate of Oklahoma State University, Paula Burkes has more than 30 years experience writing and editing award-winning material for newspapers and healthcare, educational and telecommunications institutions in Tulsa, Oklahoma...
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