A recent U.S. Supreme Court ruling provides much needed guidance on the issue of whether bankruptcy protection is afforded to inherited IRAs.

While the bankruptcy protection afforded to ERISA qualified plans (as well as contributory and rollover IRAs) is clear the protection given to inherited IRAs hadn’t been as well-defined.

In Clark, et ux v. Rameker the U.S. Supreme Court unanimously held that funds held in inherited IRAs are NOT protected as “retirement funds” within the meaning of Bankruptcy Code §522(b)(3)(C).

Several states have specific provisions exempting inherited IRAs from a bankruptcy estate.  As the U.S. Supreme Court ruling deals with federal bankruptcy rules it is silent regarding state-specific issues and, as such, it’s assumed that state protections will still be available to residents of such states.