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Estate planning and IRAs

Individual Retirement Accounts are a fantastic way to let your money grow tax-free until you decide to retire. But they also offer some benefits for those who are drafting estate plans. Social Security benefits, 401(k)s and pensions are safeguarded from creditors during a bankruptcy, and IRAs are as well. This means that they won't be able to seize those assets should you declare bankruptcy.

IRAs also make is incredibly easy to choose a beneficiary. You can name a spouse or a child and the account will be passed to them without going through the probate process. If you leave the IRA to a spouse, they can roll it over into their account and it will be given the same protections it gave you. However, they cannot add this IRA to any retirement assets they may have.

However, for non-spouse beneficiaries, bankruptcy protections won't be extended. The way the government see it is the money was meant for your or your spouse's retirement. Once you've passed away and left it to a non-spouse, the funds aren't considered retirement assets anymore.

Don't worry, there are other options for non-spouse beneficiaries. One is to set up a trust and then make that trust the IRA's beneficiary. If it's done correctly, the funds will be protected from creditors but still usable by your beneficiary.

If you have questions about how to fit your IRA into your estate plan, an estate planning attorney can answer them and may be able to help you draft your documents.

Source:, "Estate Planning Tip: Creditor Protection for IRAs & Beneficiaries," Barry Glassman, December 9, 2016

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