Are the assets in your IRA protected from creditors? They may be, under state law. Your beneficiaries also might enjoy this protection, after they inherit.
A few states specifically protect individual IRA beneficiaries as well as IRA owners from the claims of creditors. Most states, though, don’t spell out beneficiaries’ protection. In those “silent” states, what creditor protection do individual beneficiaries have? There are two categories of claims:
Claims against the decedent, the original owner of the IRA. Legal experts believe that IRA beneficiaries should not be liable for those claims, except in the case of taxes owed to the IRS.
Claims against the IRA beneficiary himself. Suppose you inherit an IRA and, a few years later, lose a lawsuit. Can the inherited IRA be seized to pay the award?
Except in those few states with specific protection, that’s an open question. However, individual IRA beneficiaries in states without specific protection may be vulnerable to creditors’ claims. Under current law, you shouldn’t count on an inherited IRA as being creditor-proof.