Imagine this: you’ve worked hard to save money in your IRA or 401(k) that will someday be left to your spouse or children upon your passing.
You do the right thing by hand selecting beneficiaries and rest easy knowing the money will be safe for heirs after you are gone.
Years later, your child inherits your retirement account, and is soon laid off from work. A new job is proving difficult to find and bills are spiraling out of control. The only way out is to file bankruptcy, which the child does, believing the retirement account will at least be there as a nest egg during hard times ahead.
After all, 401(k) s and IRAs are generally considered “off limits” if an account holder files for bankruptcy. This helps to ensure that the individual has enough money for retirement, despite any current financial troubles. Surely an inherited retirement account will be afforded this same protection…right? Maybe not.