In a unanimous decision in Clark v. Rameker, No. 13-299, 573 U.S. (2014), the Supreme Court ruled that an inherited IRA is no longer a retirement account, noting that a beneficiary can withdraw any amount from the account without penalty whenever he or she wishes, and so isn’t protected from creditors under federal bankruptcy law.
Perhaps one should establish a trust as the IRA’s beneficiary, or set up an IRA as a trust account while the owner is still alive. (In either case, the original owner still has access to the money before he or she dies.) Trusts, depending on the type and terms, can shield assets, including an IRA, from creditors.
And what about those who already own an inherited IRA? Depending on where they live and how long they’ve lived there, those assets might still be protected in bankruptcy proceedings. Several states, including Alaska, Arizona, Florida, Missouri, North Carolina, South Carolina, and Texas, have laws that afford that have such protection in certain cases, even in the wake of the Supreme Court decision.