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Is a Roth IRA exempt??
Dennis, et al:
In any 522(b)(3)(C) exemption issue, the code requires that the funds in any
applicable retirement account be tax exempt. In the rollover from pension
to IRA you mentioned, if the pension was not tax exempt due to overfunding
or other failures (most likely seen in self-employed retirement plans), then
the IRA would not be exempt.
This makes me think that when we are dealing with exempting under
522(b)(3)(C), especially with the self-employed, we should be writing CYA
letters which say the exemption is dependent on them being properly
structured and funded under the IRC and any other applicable statutes such
that they qualify for the tax exemption, that we are not qualified to offer
an opinion on that point and they should consult with qualified tax counsel
to insure that the plan is tax exempt and therefore exempt under the
bankruptcy code.
A corollary to this issue recently came up on the NACBA listserv. PC had a
$100,000 windfall that he wanted to exempt. The question was raised whether
he could fund an IRA with the $$ or buy an annuity. Of course the annuity
is no good in CA, but the IRA question implicated two issues:
1. There is a quite low an annual limit on IRA contributions. In 2013 it
is $5.5k ($6.5K if over 50). Thus if the debtor had funded an IRA with a
contribution over the limit, he would have ended up with same problem that
the debtor in Razzano had. Other ERISA plans have higher limits.
2. The other issue is that retirement plans must be funded from earned
income. While there is no tracing issue, the contribution must not be
greater than the amount of earned income.
So now I have convinced myself that I should be asking more questions about
these plans than I previously asked before I take my sweet lambs into
bankruptcy.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green
Attorney at Law
Fitzgerald & Green
1010 E. Union St. Ste. 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
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Sam:
Razzano is an odd case. It basically held that because a Roth IRA can only
be funded from certain sources, and the Razzano IRA was not funded from
those allowed sources, it was not a valid Roth IRA.
I am not a tax expert, but ask a tax lawyer what sources a debtor can use
to fund a Roth IRA.
I believe the debtor can fund a Roth IRA from earnings, but not from Social
Security (as Razzano did).
Check the source of the funds from the debtor and ask a tax lawyer. I have
exempted a lot of Roth IRAs.
It is interesting that an IRA is not exempt if it was illegally funded. A
roll over of $1,000,000 from a pension to an IRA is ok, but just putting
$1,000,000 into an IRA is not.
d
On Wed, Feb 13, 2013 at 3:45 PM, sambenevento wrote:
>
> I am filing a 7 using 703 exemptions. Client has a $100,000 Roth IRA. I
> always assumed these are exempt under 522(b)(3)(C) given that they are not
> taxed and they are created under IRS code section 408. In fact I have filed
> a few cases claiming the exemption on much smaller Roths without incident.
> Then I came across the case of In re Razzano which was decided in the
> Northern District of CA in 2010. It is unpublished, but the Westlaw cite is
> 2010 WL 3075603. Judge Edward Jellen ruled that the Roth is not exempt
> under 704 exemptions OR BK code section 522(b)(3)(C). Should I be worried
> about filing this case?? Does anyone have any experience with this issue
> that they can share?
>
>
>
Sam:Razzano is an odd case. It basically held that because a Roth IRA can only be funded from certain sources, and the Razzano IRA was not funded from those allowed sources, it was not a valid Roth IRA.
I am not a tax expert, but ask a tax lawyer what sources a debtor can use to fund a Roth IRA. I believe the debtor can fund a Roth IRA from earnings, but not from Social Security (as Razzano did).
Check the source of the funds from the debtor and ask a tax lawyer. I have exempted a lot of Roth IRAs.It is interesting that an IRA is not exempt if it was illegally funded. ng $1,000,000 into an IRA is not.
dOn Wed, Feb 13, 2013 at 3:45 PM, sambenevento <
The post was migrated from Yahoo.
Yes, they have to meet all the rules of the IRA contribution. You need
earned income for that year sufficient to fund it.
As to Roth IRA versus Regular IRA, a cannot fathom the exemption would
be treated any differently. If you find otherwise, please let us all
know.
Steven B. Lever
The post was migrated from Yahoo.
Sorry but I don't see any option on my screen to attach a document. I will try emailing the case to you and see if that works. Bottom line, the Debtor in the case had funded a $5000 Roth IRA 6 weeks before filing. The Court indicated that a Roth could only be funded from taxable compensation and apparently the Debtor had none. So this ruling seemed to turn on the fact that the Debtor was ineligible under the IRS code to create the Roth. However, the reason I researched the issue in the first instance is that I seemed to remember hearing about some other problems exempting Roth, vs Traditional, IRAs.
>
> Sam:
>
>
>
> Please post the ruling. While I would like to read it, I can see no
> possible way to read the statute to say a Roth IRA is not exempt under
> 522(b)(3)(C). It lists 408A of the IRC, which is Roth IRAs, so I await the
> opinion to see what the judge hung his hat on.
>
>
>
> If you have any questions or concerns, please contact me.
>
>
>
> Pat
>
>
>
> Patrick T. Green
>
> Attorney at Law
>
> Fitzgerald & Green
>
> 1010 E. Union St. Ste. 206
>
> Pasadena, CA 91106
>
> Tel: 626-449-8433
>
> Fax: 626-449-0565
>
> pat@...
>
>
>
> sambenevento
> Sent: Wednesday, February 13, 2013 3:46 PM
> To: cdcbaa@yahoogroups.com
> Subject: [cdcbaa] Is a Roth IRA exempt??
>
>
>
>
>
> I am filing a 7 using 703 exemptions. Client has a $100,000 Roth IRA. I
> always assumed these are exempt under 522(b)(3)(C) given that they are not
> taxed and they are created under IRS code section 408. In fact I have filed
> a few cases claiming the exemption on much smaller Roths without incident.
> Then I came across the case of In re Razzano which was decided in the
> Northern District of CA in 2010. It is unpublished, but the Westlaw cite is
> 2010 WL 3075603. Judge Edward Jellen ruled that the Roth is not exempt under
> 704 exemptions OR BK code section 522(b)(3)(C). Should I be worried about
> filing this case?? Does anyone have any experience with this issue that they
> can share?
>
The post was migrated from Yahoo.
Sam:
Please post the ruling. While I would like to read it, I can see no
possible way to read the statute to say a Roth IRA is not exempt under
522(b)(3)(C). It lists 408A of the IRC, which is Roth IRAs, so I await the
opinion to see what the judge hung his hat on.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green
Attorney at Law
Fitzgerald & Green
1010 E. Union St. Ste. 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
The post was migrated from Yahoo.
I am filing a 7 using 703 exemptions. Client has a $100,000 Roth IRA. I always assumed these are exempt under 522(b)(3)(C) given that they are not taxed and they are created under IRS code section 408. In fact I have filed a few cases claiming the exemption on much smaller Roths without incident. Then I came across the case of In re Razzano which was decided in the Northern District of CA in 2010. It is unpublished, but the Westlaw cite is 2010 WL 3075603. Judge Edward Jellen ruled that the Roth is not exempt under 704 exemptions OR BK code section 522(b)(3)(C). Should I be worried about filing this case?? Does anyone have any experience with this issue that they can share?
The post was migrated from Yahoo.