Roth IRAs, Like Traditional IRAs, Are Excluded from a Georgia Debtor’s Bankruptcy Estate

In a case of first impression, the Eleventh Circuit held that Roth IRAs are excluded from Georgia debtors’ bankruptcy estates under the Bankruptcy Code and Georgia’s garnishment statute. In Hoffman v. Signature Bank of Georgia (In re Hoffman), 2022 U.S. App. LEXIS 2119 (11th Cir. Jan. 24, 2022), the court reversed the district court’s affirmance of the bankruptcy court’s order concluding that the debtor’s Roth IRAs were not excluded from his bankruptcy estate. Writing for the court, Judge Wilson explained that § 541(c)(2) of the Bankruptcy Code excludes from a bankruptcy estate property of the debtor if three elements are met: (1) the debtor has a beneficial interest in a trust; (2) the interest has a restriction on transfer; and (3) the restriction is enforceable under either state or federal nonbankruptcy law. It was undisputed that a Roth IRA’s corpus qualifies as a beneficial interest in a trust. And the exemption provision of Georgia’s garnishment statute, the court explained, provides that “[f]unds or benefits from an individual retirement account . . . shall be exempt from the process of garnishment.” O.C.G.A. § 18-4-6(a)(2). The court found that the garnishment statute clearly constitutes an enforceable restriction on transfer and is an applicable nonbankruptcy law. Thus, Roth IRAs satisfied the three requisite elements for exclusion from a bankruptcy estate. Although precedent only indicated that traditional IRAs were excluded due to the exemption in Georgia’s garnishment statute, the cases predated the creation of Roth IRAs and amendments to Georgia’s garnishment exemption provision that clarified that IRAs and Roth IRAs should be treated the same. Thus, “the development of the caselaw in this area and the subsequent amendments to the Georgia Code reflect[ed] the Georgia Assembly’s intention to clarify that both traditional IRAs . . . and Roth IRAs . . . are exempt from garnishment, thus subjecting IRAs to a restriction on transfer by state statute . . . and making both types of IRAs eligible for exclusion under the Bankruptcy Code.” The court reversed and remanded.

Posted by Kamryn Deegan.

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