On October 17th, a district court affirmed a bankruptcy decision that said the mere act of signing the Merrill Lynch IRA account app caused the IRA to be fully distributed because the language in the application causes the IRA owner to engage in a prohibited transaction with their IRA. This is going to be really big new shortly.
Reason this is going to be so big is that Merrill typically only caters to the proverbial 1%, rumor has it Mr. Romney’s IRA is with Merrill. If this case holds, and other federal courts follow it, a very large number of very rich people are going to be hit with a very large amount of tax penalties.
Other big consideration is bankruptcy. That is what this court case was about.
When people file bankruptcy, as a general rule their IRAs are considered exempt assets which means the bankruptcy trustee can’t take them away. However this case said that since the account language caused the IRA owner to engage in a prohibited transaction their IRA was no longer exempt and thus it was up for grabs.
The case was In re Daley and just click on this link to get it.