That opinion makes clear that a beneficiary faces a choice between (1) "rolling over" the IRA, thus making the IRA subject to the tax and bankruptcy rules for traditional and Roth IRAs, or (2) keeping the IRA as an inherited IRA subject to different tax and bankruptcy rules for inherited IRAs.
A debtor that rolls over the funds from an inherited IRA into their own IRA account has subjected themselves to the same tax and bankruptcy rules that would apply to the funds as if the debtor had contributed the funds in the account themselves. Unlike an inherited IRA, a debtor's IRA is a retirement account, and a debtor therefore can claim an exemption of the funds in an IRA that has been properly rolled over.
Congress created as part of the 2005 Act a category of exemption rights that may be exercised by the debtor even if the debtor's state has opted out of the federal exemption scheme. In addition to exemptions under the laws of the debtor's domicile, the debtor is entitled to exempt under section 522(b)(3)(C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 357 or 501(a) of the Internal Revenue Code.
A debtor that inherits a retirement account can use an exemption to protect the account, however, the inherited IRA must be rolled over into a retirement for the debtor, subjecting the funds to tax and bankruptcy laws, but allowing the use of the exemption.
Funds in a debtor's IRA qualify as "retirement funds" for purposes of section 522(b)(3)(C) regardless if the funds in the account are sourced from an inherited IRA. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.