IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 11-40377

In the matter of: JANICE ELAINE CHILTON; ROBERT GREGG CHILTON,

Debtors.

ROBERT GREGG CHILTON AND JANICE ELAINE CHILTON,

Appellees,

v.

CHRISTOPHER MOSER,

Appellant.

Appeal from the United States United States District 

Court for the Eastern District of Texas

Before BENAVIDES, STEWART, and GRAVES, Circuit Judges.

CARL E. STEWART, Circuit Judge:

The debtors Robert Gregg Chilton and Janice Elaine Chilton inherited an

IRA worth $170,000 from Janice Elaine Chilton’s mother, Shirley Jean Heil. 

When they filed for bankruptcy, the debtors sought to exempt the inherited IRA

from the bankruptcy estate pursuant to 11 U.S.C. § 522(d)(12), which permits

debtors to exempt certain “retirement funds to the extent that those funds are

in a fund or account that is exempt from taxation” under specified provisions of

the Internal Revenue Code. Christopher Moser, the Chapter 7 Trustee for the

United States Court of Appeals

Fifth Circuit

F I L E D

March 12, 2012

Lyle W. Cayce

Clerk

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debtor’s bankruptcy proceeding, objected to the exemption, arguing that

inherited IRAs do not qualify for exemption under section 522(d)(12). After the

bankruptcy court ruled for the trustee, the district court reversed the

bankruptcy court. Because we hold that inherited IRAs are exempt from the

bankruptcy estate pursuant to 11 U.S.C. § 522(d)(12), we AFFIRM the district

court’s judgment.

I.

The facts are not disputed. For several years, Heil held an individual

retirement account (“IRA”) with RBC Dain Rauscher. After Heil died on

November 28, 2007, Heil’s account passed directly to Chilton, the account’s

designated beneficiary and Heil’s daughter, without passing through probate

proceedings. Chilton established an IRA with RBC Dain Rauscher to receive

distributions from Heil’s IRA. Chilton’s IRA was established as an inherited IRA

under the Internal Revenue Code (the “inherited IRA”).

The debtors filed for bankruptcy under Chapter 7 of the Bankruptcy Code

on December 18, 2008. They listed the inherited IRA as an asset in their

bankruptcy petition and sought to exempt $170,000 contained in the inherited

IRA pursuant to 11 U.S.C. § 522(d)(12). The trustee objected to the claimed

exemption on the grounds that the funds in the inherited IRA are not

“retirement funds” within the meaning of 11 U.S.C. § 522(d)(12) and are not

contained in the type of tax-exempt accounts specified in 11 U.S.C. § 522(d)(12). 

In response to the trustee’s objection, the debtors converted their filing to a

bankruptcy under Chapter 13 of the Bankruptcy Code.

The trustee again objected to the debtors’ claimed exemption. After a

hearing on October 28, 2009, the bankruptcy court sustained the trustee’s

objection by order dated March 5, 2010. The district court then reversed the

ruling of the bankruptcy court, citing a number of cases decided subsequent to

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the bankruptcy court’s ruling that arrived at the opposite result. This appeal

followed.

II.

A.

This court reviews questions of law such as the interpretation of the

Bankruptcy Code de novo. See, e.g., In re England (Pritchard v. Trustee), 153

F.3d 232, 234 (5th Cir. 1998).

B.

The Bankruptcy Code permits debtors to exempt certain property from the

bankruptcy estate. 

As a general matter, upon the filing of a petition for bankruptcy, all

legal or equitable interests of the debtor in property become the

property of the bankruptcy estate and will be distributed to the

debtor’s creditors. To help the debtor obtain a fresh start, the

Bankruptcy Code permits him to withdraw from the estate certain

interests in property, such as his car or home, up to certain values.

Rousey v. Jacoway, 544 U.S. 320, 325 (2005) (quotation marks and internal

citations omitted). A claim of exemptions is presumably valid, and the objecting

party has the burden of proving that exemptions are not properly claimed. 11

U.S.C. § 522(l); Fed. R. Bank. P. 4003(c). 

At issue in this appeal is the exemption in the Bankruptcy Code for

“[r]etirement funds to the extent that those funds are in a fund or account that

is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a)

of the Internal Revenue Code of 1986.” 11 U.S.C. § 522(d)(12). Put another way,

an exemption claimed under section 522(d)(12) must satisfy two requirements:

(1) the amount the debtor seeks to exempt must be retirement funds, and (2)

those retirement funds must be in an account that is exempt from taxation

under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue

Code. In re Nessa, 426 B.R. 312, 314 (B.A.P. 8th Cir. 2010).

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We must decide whether inherited IRAs satisfy the two requirements of

section 522(d)(12), a question of first impression for this court and our sister

circuits.

C.

We begin with whether the funds in an inherited IRA are “retirement

funds” as that phrase is used in section 522(d)(12). The phrase “retirement

funds” is not defined in the Bankruptcy Code. To interpret statutory language,

we begin with its plain meaning. See, e.g., Conn. Nat’l Bank v. Germain, 503

U.S. 249, 253-54 (1992). “[R]etirement” is defined as “withdrawal from office,

active service, or business”; “fund” is defined as “a sum of money or other

resources the principal or interest of which is set apart for a specific objective or

activity.” Webster’s Third New Int’l Dictionary 921, 1939 (1993). The trustee

argues that these definitions do not describe inherited IRAs because

beneficiaries of inherited IRAs do not suffer penalties for withdrawing funds

from inherited IRAs before retirement age. 

Most of the courts that have analyzed this issue have concluded that

inherited IRAs are “retirement funds” as that phrase is used in section

522(d)(12). Nessa, 426 B.R. at 314; In re Kuchta, 434 B.R. 837, 843-44 (Bankr. 1

N.D. Ohio 2010); In re Tabor, 433 B.R. 469, 476 (Bankr. M.D. Pa. 2010); In re

Thiem, 443 B.R. 832, 843-44 (Bankr. D. Ariz. 2011); In re Weilhammer, No. 09-

15148-LT7, 2010 WL 3431465, at *4-*6 (Bankr. S.D. Cal. Aug. 30, 2010); In re

Stephenson, U.S. Dist. LEXIS 142360, at *7-*8. These courts have noted that

the statute does not explicitly limit “retirement funds” to retirement funds that

We are aware of three bankruptcy court decisions that arrived at the opposite 1

conclusion, each of which was reversed on appeal. In re Chilton, 426 B.R. 621, 616 (Bankr.

E.D. Tex. 2010), rev’d, 444 B.R. 548 (E.D. Tex. 2011); In re Clark, 450 B.R. 858 (Bankr. W.D.

Wis. 2011), rev’d, No. 11-cv-482, 2012 WL 233990 (W.D. Wis. Jan. 5, 2012) (interpreting

analogous provision 11 U.S.C. § 522(b)(3)(C)); In re Stephenson, No. 11-cv-10848, U.S. Dist.

LEXIS 142360 (E.D. Mich. Dec. 12, 2010) (reversing oral pronouncement of bankruptcy judge

that inherited IRA was not exempt from bankruptcy estate).

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belong to the debtor. See, e.g., Nessa, 426 B.R. at 314. Accordingly, they have

reasoned that “retirement funds” can include the funds that others had

originally set aside for their retirement, as with inherited IRAs. Id.

We find the reasoning in these decisions persuasive. The plain meaning

of the statutory language refers to money that was “set apart” for retirement. 

Thus, the defining characteristic of “retirement funds” is the purpose they are

“set apart” for, not what happens after they are “set apart.” Here, there is no

question that the funds contained in the debtors’ inherited IRA were “set apart”

for retirement at the time Heil deposited them into an IRA. This reasoning finds

further support from 11 U.S.C. § 522(b)(4)(C), which provides that “a direct

transfer of retirement funds from 1 fund or account that is exempt from taxation

under section . . . 408 . . . of the Internal Revenue Code of 1986, . . . shall not

cease to qualify for exemption under . . . subsection (d)(12) by reason of such

direct transfer.” In other words, the direct transfer of “retirement funds” does

not alter their status as “retirement funds.” As we see no reason to interpret the

statutory language differently from its plain meaning, we hold that the $170,000

contained in the inherited IRA constitute “retirement funds” as that phrase is

used in section 522(d)(12).

D.

We next consider whether the funds in the inherited IRA are “in a fund or

account that is exempt from taxation under section 401, 403, 408, 408A, 414,

457, or 501(a) of the Internal Revenue Code of 1986.” 11 U.S.C. § 522(d)(12). 

While the parties agree that the debtors’ inherited IRA is tax exempt, they

disagree over which section of the Internal Revenue Code renders it exempt. 

The trustee contends that inherited IRAs are tax exempt pursuant to 26 U.S.C.

§ 402(c)(11)(A). The trustee argues that this provision explains why IRAs are

not taxed when they are converted to inherited IRAs. Id. The debtors respond

by arguing that the inherited IRA is tax exempt pursuant to 26 U.S.C. § 408(e).

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We assume without deciding that, at the time an IRA becomes an

inherited IRA, the transfer itself is tax exempt pursuant to 26 U.S.C. §

402(c)(11)(A). Since the transfer of Heil’s IRA had already occurred at the time

the debtors filed for bankruptcy, however, the issue we must decide is which

provision renders the inherited IRA exempt from taxation subsequent to the

transfer.

We agree with the other courts to have considered this question that, posttransfer, inherited IRAs are exempt from taxation by reason of 26 U.S.C. §

408(e). The statute’s expansive language, which provides that “[a]ny individual 2

retirement account is exempt from taxation under this subsection . . . .”,

indicates that section 408 is the exempting section for all individual retirement

accounts. See Estate of Kahn v. Comm’r, 125 T.C. 227, 231 (T.C. 2005)

(“[E]arnings from assets held in an IRA are not subject to taxation in the IRA

when earned, but rather, are subject to taxation when distributions are made. 

This fact does not change when the IRA is inherited from the decedent. See sec.

408(e)(1).”); Nessa, 426 B.R. at 314; In re Kuchta, 434 B.R. at 843-44; In re Tabor,

433 B.R. at 476; In re Thiem, 443 B.R. at 844-45; In re Weilhammer, 2010 WL

3431465, at *6; In re Stephenson, U.S. Dist. LEXIS 142360, at *8-*9. While

inherited IRAs operate differently from traditional IRAs, the definition of

“individual retirement accounts” in the Internal Revenue Code encompasses

inherited IRAs. See 26 U.S.C. § 408(d)(3)(C)(2) (“An individual retirement

account or individual retirement annuity shall be treated as inherited if–(I) the

individual for whose benefit the account or annuity is maintained acquired such

account by reason of the death of another individual, and (II) such individual

As with the “retirement funds” issue, we are aware of three bankruptcy court

2

decisions that arrived at the opposite conclusion with respect to this issue, each of which was

reversed on appeal. In re Chilton, 426 B.R. at 616, rev’d, 444 B.R. 548; In re Clark, 450 B.R.

858, rev’d, 2012 WL 233990; In re Stephenson, U.S. Dist. LEXIS 142360.

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was not the surviving spouse of such other individual.”). Accordingly, after an

inherited IRA is established, it stands to reason that distributions from the

inherited IRA are subject to the same provision as all other IRAs–that is, section

408–for the purpose of determining whether they are exempt from taxation.

For these reasons, section 408 of the Internal Revenue Code rendered the

inherited IRA exempt from taxation following its transfer from Heil to the

debtors. Because section 408 is one of the sections named in 11 U.S.C. §

522(d)(12), inherited IRAs are contained in an “account” that is “exempt from

taxation” as that phrase is used in section 522(d)(12).

III.

Accordingly, we AFFIRM the district court’s judgment.

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