by The NACBA membership has filed an amicus brief in the Eighth Circuit case of Running v. Miller (In re Miller), No. 13-3682, arguing that the debtor’s single premium annuity funded by a rolled over tax exempt IRA qualifies as an individual retirement annuity that is subject to exemption in bankruptcy under section 522(b)(3)(C).
The trustee objected to the exemption arguing that, as defined in Internal Revenue Code section 408(b)(2)(A) and (B), an individual retirement annuity must have flexible premiums not to exceed a specified amount. Because the debtor’s annuity was purchased in a single payment exceeding that amount, it did not meet either of those requirements.
The bankruptcy court found that the annuity was exempt and the BAP for the Eighth Circuit affirmed. No. 13-6026 (B.A.P. 8th Cir. Nov. 4, 2013).
In its amicus brief, NACBA points out that section 408(b)(2) does not require that premiums be paid into the account, but rather, dictates that if premiums are paid they must not be fixed nor may they exceed the limit set forth in section 219(b)(1)(A). A lump sum rollover payment that exceeds the premium limitation does not implicate section 408(b)(2)(B) because that paragraph does not apply to initial payments. This interpretation is supported by proposed regulations and legislative history. Staff of Joint Comm. on Tax’n, 95th Cong., 1st Sess., General Explanation of the Revenue Act of 1978 (Comm. Print 1979) 108, available at https://www.jct.gov/publications.html?func=startdown&id=2399. Prop. Treas. Reg. § 1.408-3(f)(1)(i), (ii), 46 Fed. Reg. 36,198 (July 14, 1981); Publication 590 (Individual Retirement Arrangements (IRAs)) (2014), available at http://www.irs.gov/pub/irs-pdf/p590.pdf, the Internal Revenue Service.
The brief notes that if the trustee’s position were to be adopted it could have far-reaching damaging effects as it is common for individuals to roll over tax exempt IRAs funded by former employers to single payment annuities. The single premium annuity provides a dependable source of income for retired individuals that provides an important edge against the vagaries of the financial market.