Minnesota Statutes § 550.37, subd. 24 (2002), exempts a debtor's interest in an Individual Retirement Account and Individual Retirement Annuity, each as defined in section 408 of the Internal Revenue Code, as limited by the terms of subdivision 24(a) to an indexed present value and sums reasonably necessary for the support of the debtor and the debtor's spouse or dependents.
Certified question answered.
The opinion of the court was delivered by: Anderson, Russell A., Justice.
Heard, considered, and decided by the court en banc.
The United States District Court for the District of Minnesota certified to this court the following question of law: Does Minn. Stat. § 550.37, subd. 24 exempt funds in an Individual Retirement Account and/or an Individual Retirement Annuity, each as defined in Section 408 of the Internal Revenue Code, whether or not the debtor has unlimited access to the account balance? We answer the question in the affirmative.
The essential facts underlying the action that generated this certified question have been stipulated to by the parties. In February 2003, appellant Thomas Paul Clark filed a petition for relief under Chapter 7 of the Bankruptcy Code. Clark's household consisted of he and his wife, each age 55 at the time the petition was filed. Clark owned a "qualified individual retirement annuity" ("IRA"),*fn1 on which the return varied with the performance of the underlying stock and bond investments. The IRA met the requirements of I.R.C. § 408(b) as an individual retirement annuity. At the time of Clark's bankruptcy petition, the IRA had a net surrender value of approximately $107,500. The IRA was originally funded in 2001 when Clark resigned his position with a former employer and rolled over the balance of his 401K plan to this account. The IRA allowed Clark to withdraw funds at any time, up to the full principal amount of the annuity, less a surrender charge, which began at 6 percent and declined as the funds were left invested for several years. The IRA was also subject to applicable tax penalties for removing funds prior to age 59 1/2.
Clark claimed in his bankruptcy petition that the IRA was exempt from his bankruptcy estate under Minn. Stat. § 550.37, subd. 24, and the trustee, respondent Dwight Lindquist, objected to the claimed exemption. The bankruptcy court disallowed the exemption, concluding that the IRA was not exempt property. Clark appealed to the United States District Court for the District of Minnesota*fn2 and moved for certification of the question as to the extent to which IRAs are exempt from the estate of a debtor under Minnesota law. The federal district court granted the motion and certified the question before this court.*fn3
Certified questions are questions of law that are reviewed de novo. B.M.B. v. State Farm Fire & Cas. Co., 664 N.W.2d 817, 821 (Minn. 2003). Construction of a statute, the underlying issue here, is also a legal issue subject to de novo review. Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 9 (Minn. 2002). "The object of all interpretation and construction of laws is to ascertain and effectuate the intention of the legislature." Minn. Stat. § 645.16 (2002).
Under the Bankruptcy Code, virtually all property in which a debtor has a legal or equitable interest at the commencement of the case is included in the bankruptcy estate. See 11 U.S.C. § 541 (2004). But the code also includes a list of properties that may be exempted, 11 U.S.C. § 522(d) (2004), and it allows states to establish separate exemption lists. See 11 U.S.C. § 522(b)(2)(A) (2004). A debtor may choose either the federal exemption provisions or the state provisions unless the debtor resides in a state that has "opted out" of the federal exemptions. See 11 U.S.C. § 522(b)(1) (2004). In that Minnesota has not "opted out," residents in this state may elect the federal exemptions included in section 522(d).
Pursuant to 11 U.S.C. § 522(d)(10)(E), a debtor may claim an exemption for a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless-
(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose;
(ii) such payment is on account of age or length of service; and
(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the ...