California Expands IRA Protection

02 Mar California Expands IRA Protection

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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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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