IRA and 401(k) retirement accounts are generally exempt from claims of creditors pursuant to Section 222.21, Florida Statutes and Section 522 of the Bankruptcy Code. For this reason, these types of retirement accounts can be a useful asset protection tool. However, as I have mentioned in previous blog posts, there are exceptions to every rule!
Beware – prohibited transactions can cause the assets in your IRA or 401(k) account to LOSE their exempt status! Terms like “set it and forget it,” and “we are programmed to receive,” come to mind when I think of these types of accounts. Playing around with IRA or 401(k) funds, especially self-directed accounts, is risky business!
By example, in a S.D. Fla. Bankruptcy Case, the Court concluded that the funds in the Debtor’s Merrill Lynch IRA were not exempt because the Debtor engaged in prohibited transactions pursuant to the Internal Revenue Code and the funds in his two other IRA accounts were not exempt because they constituted funds from the Merrill Lynch IRA which had lost its exempt status.
Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.