Qualified Plans
Inherited IRA protection: ARTICLE

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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, federal law[1] 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 vulnerable

However, a recent Florida Appeals court ruling[2] 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 suit.

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 deaths.


[1] Through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA

[2]  Case docket is 2D08-6428












Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com