Clark v. Rameker: Inherited IRAs are not “Retirement Funds”

Krause Financial

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In 2010 Ms. Heffron-Clark and her husband filed a Chapter 7 bankruptcy petition.  They identified the inherited IRA Ms. Heffron-Clark received from her mother as exempt from the estate in that it was “retirement funds” under 11 U.S.C. § 522(b)(3)(c).  Respondents, the bankruptcy trustee, and unsecured creditors of the estate objected to this exemption.

The Bankruptcy Court held that an inherited IRA does not share the same characteristics as a traditional IRA, and did not allow it to be exempt from the estate.  The District Court reversed, indicating that the exemption covers any account in which the funds were originally accumulated for retirement.  The Seventh Circuit disagreed and reversed the District Court.  The U.S. Supreme Court then held that the inherited IRA funds were not “retirement funds,” at least within the meaning of § 522(b)(3)(c), to-wit:

  • the holder of an inherited IRA may never invest additional money into the account
  • the holder of an inherited IRA is required to withdraw money from the account, no matter how far they are from retirement
  • the holder of an inherited IRA may withdraw the entire balance of the account at any time – and use it for any purpose – without the 10% tax penalty


This decision certainly lends support to the advantage of designating a qualified trust as a beneficiary of an IRA.  To read the full text of the decision click here.


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