Are IRA accounts exempt?

Question

Are IRA accounts exempt?

Answer

An IRA is an asset. When filing for bankruptcy all assets must be disclosed to the court. We then protect the assets using "exemptions." There are 2 sets of exemption laws available to MN residents who file for bankruptcy protection: Federal and MN exemptions. The person filing can choose only 1 set to use. Under the Federal exemptions, funds in any tax-qualified retirement account (pensions, IRAs, 401ks, 403bs, etc) are protected up to a value of $1,500,000.00. Under the MN exemptions, funds in a tax-qualified IRA are protected up to a value of $66,000.00. 

Why would anyone choose the MN exemptions? There are pros and cons to each set of protections. I prefer to use the Federal exemptions for a client if I can as the Federal exemptions allow a filer to ahve $11,975.00 in wildcard exemption (assuming a low amount of equity in the home) which can be used to protect assets that are not otherwise categorically protected (e.g., bank account balances on the date of filing, next year's tax refund, earned but unpaid wages, etc.) The MN exemptions have no wildcard allowance, but under the MN exemptions, a filer can protect up to $360,000.00 of equity in their home, whereas you can only protect up to $21,675.00 under the Federal exemptions.

Please note that the above applies to Chapter 7 bankruptcies. In Chapter 13 bankruptcies, you must still list all of your assets and apply the exemptions, but if anything cannot be protected, it is used as a measuring stick for the court to determine if the proposed plan payments are appropriate.