Report Title:

Roth IRA's; Creditor protection

Description:

Amends current law to offer same protection from creditor claims to Roth IRA's as exist for regular IRA's.

THE SENATE

S.B. NO.

2902

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO EXEMPTING ROTH INDIVIDUAL RETIREMENT ACCOUNTS FROM ATTACHMENT OR SEIZURE.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the Roth Individual Retirement Account (Roth IRA) is a sound financial tool for retirement planning. Many people currently in the work force will use the Roth IRA as a part of their financial planning as opposed to or in conjunction with a regular Individual Retirement Account. Both types of retirement accounts use compound interest to grow contributions over time, providing a nest egg for the owner of either account.

The legislature also finds that a regular IRA is protected from the claims of creditors under Hawaii Revised Statutes 651-124. The same is not true for a Roth IRA. Legal arguments abound whether a reference to Internal Revenue Code (IRC) 408 within pension money exemption statutes encompasses Roth IRA's, which are discussed within IRC 408A. It is the intent of the legislature to remove any ambiguity from our pension money exemption statute in favor of protecting Roth IRA's from the claims of creditors in the same manner as regular IRA's.

SECTION 2. Section 651-124, Hawaii Revised Statutes, is amended to read as follows:

"[651-124] Pension money exempt. The right of a debtor to a pension, annuity, retirement or disability allowance, death benefit, any optional benefit, or any other right accrued or accruing under any retirement plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, 409 (as in effect prior to January 1, 1984), 414(d), or 414(e) of the Internal Revenue Code of 1954, as amended, or any fund created by the plan or arrangement, shall be exempt from attachment, execution, seizure, the operation of bankruptcy or insolvency laws under 11 United States Code section 522(b), or under any legal process whatever. However, this section shall not apply to (1) a "qualified domestic relations order" as defined in section 206(d) of the Employee Retirement Security Act of 1974, as amended, or in section 414(p) of the Internal Revenue Code of 1954, as amended, and (2) contributions made to a plan or arrangement within the three years before the date a debtor files for bankruptcy, whether voluntary or involuntary, or within three years before the date a civil action is initiated against the debtor, except for contributions to a retirement plan established by state statute if the effect would be to eliminate a state employee's retirement service credit."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

 

INTRODUCED BY:

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