Andrew Xu 10/23/2014
Deferred Compensation
Inherited Retirement Plans Retirement plans started in the United States as an effort to help provide income and security to workers when they retire from the workforce. After workers retire, they would continue to have sustainable income to continue living a good lifestyle. In most cases, employees in a company are enrolled in a retirement plan, such as a defined benefit plan or defined contribution plan. They would also make contributions toward the plan if the plan requires. One distinct feature that the retirement plans have is the protection it provides from creditors and the like. If a person files a chapter 7 bankruptcy, their retirement plan would not be claimed under §522. The same…show more content… For example, there could be mandatory minimum contributions made to a plan, or there is an age limit that must be met before participants can start receiving distributions. If a distribution is taken out early, the participant of the plan would be subject to an early distribution tax. In the Clark v. Rameker court case, the supreme court used the previously mentioned rule along with many others to determine whether a inherited retirement plan is still considered a retirement plan. As an overview, Heidi Heffron-Clark inherited an IRA from her mother in 2001. In 2010, Heidi and her husband both filed for Chapter 7 bankruptcy, and excluded the IRA as they believed it is exempt based on §522. The main issue in this case is whether Chapter 7 bankruptcy exempt inherited retirement plans. In a 9-0 ruling, it was decided that inherited retirement plans, such as the IRA that Heidi inherited, would not be considered a retirement account and are not exempt from Chapter 7 Bankruptcy. The Supreme Court stated that inherited retirement plans violates three legal characteristics of a retirement…show more content… Rameker ruling, there is a need to change around retirement planning to help protect inherited retirement plans. In the article “How to Protect Inherited IRAs After the Clark v. Rameker Decision,” the author provides guidance on the effect of the Clark v. Rameker decision, and different steps that can be taken to provide further protection for such plans. The article mentions that certain states, like Arizona, Florida, Texas, and many others have put out laws that protect inherited IRAs from situations such as the one Clark was put in. As a result, if a person resides in one of the states that has enacted this law, they would be protected from creditors and lawsuits. However, there are some cons that must be taken into consideration when relying solely on the state law to protect ones retirement plans. As the article says, federal bankruptcy laws have a 730 day residency requirement before their inherited retirement plans are protected from the law (Altman & Associates, 2014). Therefore, a person would have to reside in a state for at least 730 days before they are eligible for the state bankruptcy exemption. In today’s society,
