IRA Assets Not-Exempt When IRA Is The Judgment Debtor
A client maintains a self-directed IRA which has purchased rental real estate. The real estate is titled in the name of the IRA. The IRA owns several properties as well as financial assets. A tenant filed a lawsuit. The client asked me to reaffirm his understanding that if he lost the lawsuit the tenant/plaintiff could not satisfy the judgment against the other real estate and financial assets because IRAs are exempt from creditors under Florida law.
All IRA holdings are at risk from a tenant suit. There is an important difference between IRA assets- assets owned by the IRS- and a debtor’s beneficial interest in his IRA and the proceeds the debtor receives from his IRA. A Florida debtor’s IRA interest as his IRA beneficiary is exempt from judgment creditors. That protection does not extend to the IRA itself. If the IRA is sued a creditor should be able to levy upon whatever the IRA owns.
This question illustrates one of the risk associated with self-directed IRAs which invest in non-traditional assets other than marketable securities.
