Florida Says ‘Inherited’ IRAs Don’t Get
Protection from Creditors
Shane Flait (2013)
The federal government created qualified
plans – such as Pensions, 401(k), and
IRA retirement plans –as an incentive
for workers to save for their
retirement. As a further incentive,
offers protection of these plans’ funds
from creditor claims under bankruptcy.
But beware, plan beneficiaries aren’t so
protected from their creditors.
This federal protection doesn’t include
claims from either a former spouse or
the IRS. And a personal IRA (not part of
an employer plan) is protected only up
to $1 Million unless it was set up only
for a rollover from a 401(k) or other
type of employer plan.
All State laws must abide by the federal
law for bankruptcy claims. For all other
legal actions, your own state’s laws
determine how much protection against
creditors you get. States exempt all or
only some ‘dollar’ amount.
When the plan owner – i.e. the one that
contributed the savings for ‘his’
retirement – dies, his plan with its
funds goes to its designated
beneficiary. The beneficiary may be the
owner’s spouse or someone else – such as
his child. The spouse has the option of
becoming the ‘new owner’ of the IRA with
protections and privileges of the owner.
But, nonspousal beneficiaries can never
become ‘owners’. They remain as
‘beneficiaries of the owner’. A
beneficiary can choose distribution of
his fund over 5-years; or make required
minimum distributions over his life –
according to IRS tables.
Florida exempts funds from creditor
claims for ‘owners of IRAs’ whether in
or out of bankruptcy according to its
Florida Statute 222.21(a).
NonSpousal Inherited IRAs are especially
However, a recent Florida Appeals court
found that IRA funds inherited by a
beneficiary other than a spouse are not
exempt. That’s because it interprets
that the public policy behind the IRA
exemption that allows debtors to
preserve assets for their own retirement
doesn’t include nonspouse beneficiaries.
No doubt many other states will follow
Parents concerned about protecting their
estate from their children’s creditors
should get professional financial or
legal advice to structure their IRAs so
they will be protected after their
Shane Flait is a writer and educator.
See more at