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Inherited IRAs are Not Protected from Judgment Creditors

access_time Posted on: September 2nd, 2022

A new way to force payment on a judgment.

The Internal Revenue Code defines an IRA as an individual retirement account/ annuity which was acquired because of the death of another person when the recipient was not the surviving spouse.  

The Judicial Code protects retirement funds and accounts from attachment or execution by judgment creditors.  Until recently, Pennsylvania Courts had not addressed whether inherited IRAs were subject to that protection.

In June, the Pennsylvania Supreme Court denied an appeal from a January 2022 ruling by the Superior Court of Pennsylvania regarding Inherited IRAs.   The issue arose in an Allegheny County garnishment action and was eventually presented before the Pennsylvania Superior Court as a matter of first impression.

Because there was no prior case law in Pennsylvania regarding the issue, the court used the Bankruptcy Code for guidance.  The Bankruptcy Code allows certain retirement funds to be out of reach of creditors but the Bankruptcy Code also does not mention inherited IRAs.

According to the Court’s Opinion, retirement funds are exempt so that debtors can meet basic needs during their years in retirement.  Account holders are discouraged from withdrawing funds prior to retirement due to certain penalties.  However, no such penalties exist for inherited IRAs other than taxes that might apply.

Therefore, the PA Superior Court has held that inherited IRAs do not count as “retirement funds” and that they can be reached by judgment creditors.  For creditors, this provides another avenue through which to possibly obtain payment on a judgment.

For help with Judgment Execution questions and other Collections issues, contact Attorney Hunter Schenck. You can email Attorney Schenck at hschenck@cgalaw.com or use the CGA online question feature to set up a consultation with her.

CGA Law Firm Attorney; Hunter Schenk

Hunter B. Schenck

Attorney

Hunter B. Schenck provides legal services to individuals and businesses in the area of litigation.

Hunter is ranked as 2021 and 2022 Super Lawyer Rising Star. She is an active member of the York County Bar Association and serves as a member of the Social, Membership, and Law Day Committees. She is the Immediate Past Chair of the York County Bar Association’s Young Lawyers Section and a member of the Herbert Cohen Inn of Court. Hunter was a member of the 2015, 2017, 2019, and 2022 Bar Stools Casts. Hunter is a member of the Penn State Law Alumni Board, the Penn State York Women’s Philanthropic Network, and a life member of the Penn State Alumni Association.

Read Hunter’s Bio Page in full HERE.