California Expands IRA Protection
By Cathy Moran, California Bankruptcy Lawyer on Mar 2, 2007 in Bankruptcy Cases & Legislation
An intermediate appeals court in California held last month that funds traceable from a fully exempt pension plan into an IRA with otherwise limited exemption are fully exempt. McMullen v. Haycock, Cal.Rptr.3d—, 2007 WL 447913, Cal.App. 2 Dist., February 13, 2007 (No. B187748).
Under California exemption law found in Code of Civil Procedure 704.150, IRA’s were only exempt to the extent necessary for the support of the judgment debtor and his dependents. A bankruptcy court had earlier interpreted that to mean that upon rollover of a 401(k) or pension plan, the rolled-over funds lost the absolute protection they otherwise had, and assumed the limited protection provided to IRA’s.
This decision may have limited application in bankruptcy cases, since the ‘05 amendments provided a $1M exemption for IRA’s available to bankruptcy debtors everywhere, but it certainly is a step forward in eliminating an inequity between the job changing debtor and one who retires from a life long job.
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