RESPONDENT:Jill R. Jacoway
LOCATION:City of New London Town Hall
DOCKET NO.: 03-1407
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit
CITATION: 544 US 320 (2005)
GRANTED: Jun 07, 2004
ARGUED: Dec 01, 2004
DECIDED: Apr 04, 2005
Brady C. Williamson – for AARP as amicus curiae urging reversal
Colli C. McKiever – argued the cause for Respondent
Elizabeth Warren – for AARP as amicus curiae urging reversal
Jean Constantine-Davis – for AARP as amicus curiae urging reversal
Michael R. Schuster – for AARP as amicus curiae urging reversal
Nina F. Simon – for AARP as amicus curiae urging reversal
Pamela S. Karlan – argued the cause for Petitioners
Patricia J. Kaeding – for AARP as amicus curiae urging reversal
Facts of the case
Richard and Betty Rousey filed bankruptcy and claimed their two Individual Retirement Accounts were exempt from the bankruptcy. Federal law exempted the following from bankruptcy: “a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract.” The exemption had to be “on account of illness, disability, death, age, or length of service, to the extent reasonable necessary for the support of the debtor….” The Rouseys said an IRA was a “similar plan or contract.” The bankruptcy court and a bankruptcy appellate panel ruled an IRA not a “similar plan or contract.” The Eighth Circuit Court of Appeals ruled that even if IRAs are “similar plans or contracts,” the Rouseys’ account withdrawals would not be “on account of illness, disability, death, age, or length of service.” The Eighth Circuit’s ruling conflicted with those of other circuits.
Are individual retirement accounts (IRAs) exempt from bankruptcy estates?
Media for Rousey v. Jacoway
Audio Transcription for Opinion Announcement – April 04, 2005 in Rousey v. Jacoway
William H. Rehnquist:
The opinion of the Court in No.03-1407, Rousey against Jacoway will be announced by Justice Thomas.
This case comes to us on a writ of certiorari to the United States Court of Appeals for the Eight Circuit.
At the termination of their employment petitioner Rouseys’ each took a lump sum distribution from their employers bounds of pension plans.
They rolled over these sums in to two individual retirement accounts.
Several years later the Rouseys filed for bankruptcy under Chapter 7 of the Bankruptcy Code.
In their bankruptcy petitioner Rouseys sought to protect their IRAs from their creditors by claiming that they were exempt from the bankruptcy estate under 11 U.S.C. Section 522(d)(10)(E).
This provision permits the exemption of the right to receive payment from a plan or a contract that is similar to stock, bonus, pension, profit sharing, or annuity plans.
Where that right to receive payment is on account of illness, disability, death or age or length of service.
The bankruptcy trustee respondent Jill Jacoway filed a motion objecting to the exemption of the Rouseys’ IRAs under this provison and seeking their turnover.
The Bankruptcy Court granted Jacoway’s motion.
The Rouseys appealed.
The Bankruptcy Appellate Panel for the Eight Circuit affirmed.
The Rouseys again appealed and the Eight Circuit likewise affirmed.
In an opinion filed with the Clerk today, we reverse the judgment of the Court of Appeals.
We conclude that the Rouseys’ right to receive payment from their IRA’s is a right to receive payment on account of age.
Under Section 408(a)(4) of the Internal Revenue Code, the Rouseys have a non forfeitable right to the entire balance contained in their IRAs.
The Internal Revenue Code however also restricts the Rouseys’ ability to withdraw money from their IRAs prior to reaching age 59-and-a-half by imposing a 10% penalty on such withdrawals.
This penalty is substantial and effectively prevents the Rouseys’ from accessing the entire balance in their IRAs.
The penalty is removed once the Rouseys reached age 59-and-a-half.
Thus, we conclude that the Rouseys have a right to receive payment on account of age.
We also conclude that the IRAs are similar plans or contracts within the meaning of the statute.
The specified plans, the stock bonus, pension, profit sharing, or annuity plans share one common feature.
They are substitute for wages earned as salary or hourly compensation.
IRAs likewise provide such an income substitute.
Because the IRAs are similar plans or contract and provide a right to receive payment on account of age, we conclude that they can be exempted from the bankruptcy estate under Section 522(d)(10)(E).
The opinion of the Court is unanimous.