Ohio has never been a leader when it comes to what our great state will permit you to keep safe from creditors and collectors. We have taken a great leap forward in the recent jobs and business bill signed by the governor December 20, 2012. I have previous written of the huge expansion of the homestead exemption. That same bill adds more protections for your IRA.
It wasn’t so long ago that Ohio did not protect IRA accounts at all, except for
- Public Pensions, safe
- Police Pensions, safe
- Fire Pensions, safe
- Highway Patrol Pensions, safe
- Corporate Pensions, safe
Individual Retirement Account (IRA) was not exempt in Ohio until a few years ago. That was in response to a United States Supreme Court decision protecting them. The chapter 7 trustees loved going after them to pay your creditors and themselves. Not to fault them, but it was their job to do so. Any asset that is not exempted by Ohio or federal law is to be liquidated and paid out.
IRA accounts have a feature that is unique among retirement assets. An IRA can be inherited. If you have ever set one up, you must designate a beneficiary who will receive it when you die. This created a problem with IRA accounts, especially in the bankruptcy court for the Northern District of Ohio. There was no question that an IRA to which you contributed was exempt and thereby protected from your creditors.
What about an inherited Individual Retirement Account? The exemption statute was silent on this point. The Cleveland bankruptcy court treated inherited IRA’s as an asset of the bankruptcy estate. That meant that your trustee could cash it and pay your creditors with the money plus administrative costs. This was not nastiness on the part of the court, or the trustees. It was simple statutory interpretation. The fact was that the Ohio law did not address the entire nature of the account.
That changes March 20, 2013. Inherited IRA accounts will be exempt after that date. Now, if you have an IRA interest as the result of the death of another and you need a bankruptcy, you no longer need to choose to give up the investment to escape debt. You just need to wait until the effective date of the new exemption law, file bankruptcy and keep your inherited IRA.