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Exempting fully matured IRAs
Nick I agree with your analysis that there is no distinction for exemption purposes between alleged matured IRA' alleged unmatured IRA's.
That said, I always scratch my head however at the argument in a Chapter 13 that liquidating an exempt asset during the Chapter 13 is additional
disposable income that must be paid into the plan. Whether it is taxable or
not should not matter. If a debtor withdraws money from exempt funds held
in a checking account that is not disposable income. If a debtor sells her
exempt car during the Chapter 13 in order to buy a replacement vehicle,
that is not disposable income that is required to be paid into the plan for
Chapter 13 purposes. Why then, is it asserted by some to be additional
disposable income that must be paid into the Chapter 13 trustee then if
withdrawn from a Roth IRA (not subject to income tax) or a regular IRA (subject to
income tax)?
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
In a message dated 1/28/2014 10:58:34 A.M. Pacific Standard Time,
ngebelt@gebeltlaw.com writes:
Dear Listmates,
I have a close friend who practices in Orange County. He recently had a
341 meeting at which the Chapter 13 Trustees staff attorney claimed that a
fully matured IRA i.e., the debtor has reached withdrawal age exempt as a retirement account. My friend sent me an email asking about this assertion and I gave him my thoughts. He then asked me to post our exchange to all of you to see if there is a storm brewing among Chapter 13 Trustees and to benefit from your collective wisdom. If you have a minute,
please opine on the question and on my analysis.
All the best,
Nick
Here is my friends question:
the question put to me is "are IRA accounts that have matured and that areaccessible to the debtor exempt as retirement accounts?"
I read in re Rousey - 544 U.S. 320 (2005) and it clearly exempts these
accounts so I think the issue is maturity of the account.
Got any thoughts?
Dear John,
You posed an interesting question. Here are my somewhat rough hewn
thoughts.
I. California As An Opt-Out State
As you know, Cal. Civ. Proc. Code 703.130 provides (emphasis added):
Pursuant to the authority of paragraph (2) of subsection (b) of Section
522 of Title 11 of the United States Code, the exemptions set forth in
subsection (d) of Section 522 of Title 11 of the United States Code (Bankruptcy)
are not authorized in this state.
Thus, the rest of 11 U.S.C. 522, i.e., the portion other than is available to exempt a debtors possessions in a Title 11 case. In
particular, 522(n) is available:
For assets in individual retirement accounts described in section 408 or
408A of the Internal Revenue Code of 1986, other than a simplified employee
pension under section 408(k) of such Code or a simple retirement account
under section 408(p) of such Code, the aggregate value of such assets
exempted under this section, without regard to amounts attributable to rollover
contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and
403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not
exceed $1,000,000 in a case filed by a debtor who is an individual, exceptthat such amount may be increased if the interests of justice so require.This language has no exception for matured IRAs. However, it only exemptsthe corpus; any stream of distributions is not exempt.
II. The Homeowners Table
If you have a fight over the applicability of 522(n) and your client
uses the homeowners table, then the corpus of the IRA is exempt using that
table: Cal. Civ. Proc. Code 704.115 provides, in relevant part:
(a) As used in this section, private retirement plan means: . . .
individual retirement accounts . . .
(b) All amounts held, controlled, or in process of distribution by a
private retirement plan, for the payment of benefits as an annuity, pension,
retirement allowance, disability payment, or death benefit from a privateretirement plan are exempt.
Again, there is no distinction made between matured and unmatured IRAs,
though as before, the stream of distribution payments is not exempt.
III. The Renters Table
If you are using the 703.140 table, things are a bit different because
IRAs are not mentioned in Cal. Civ. Proc. Code 703.140(b)(10)(E). Here
you have to appeal to the case law.
The holding in In re Weilhammer, No. 09-15148-LT7 (Bankr. S.D. Cal. 2010) (available at:
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Nick:
The trustees position is nonsense. Withdrawal agewithout the 10% penalty/ surtax that applies to withdrawal before that age. However, at 70 (it is a little more complicated than straight up 70 ) mandatory distributions must begin. They are called Minimum Requited Distributions (MRDs). They are based on a life expectancy tables. In a Ch 13 the MDRs would be income that has to be factored into the plan payments, but the rest of the IRA would be exempt.
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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