Are IRAs Tangible or Intangible Property?

Are IRAs Tangible or Intangible Property?
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Tangible property is usually defined as something you can feel and touch, such as money, vehicles, jewelry, equipment, marketable securities, or furniture. But while real estate is something you can touch, it does not belong to the tangible property class. It is separate. That is because tangible property tends to be portable so that you can move it from one location to the other. In the case of real estate, it is immovable.

On the other hand, things goodwill, patents, a workforce, or brand recognition, client mailing list, and future rents are considered intangible property. According to the Internal Revenue Service (IRS), these are some examples that are undoubtedly assets in a financial sense but are not considered tangible.

Typically, individual retirement accounts (IRAs), which are tax-advantaged, can be used to hold tangible assets, such as gold and silver coins. It also has securities that can be converted easily into cash. However, many other physical assets, such as antiques and artworks, are not permitted within the accounts.

But you can move these accounts from one financial institution to another. For that reason, one could argue that the accounts are tangible property even though they have restrictions concerning physical assets and associations exist between IRAs and intangible assets.

Roth vs. Traditional IRAs

You can set up an IRA. Alternatively, a small business can set up this kind of retirement account. The goal is to enjoy the tax advantages both the Roth and the traditional IRAs tend to offer.

Under a traditional IRA, pre-tax income is deducted and placed into a retirement account. And upon retirement as early as ​59 1/2​ years of age, the account and its earnings can be distributed to the retiree, at which point the proceeds are taxed as income.

A Roth IRA works differently. After-tax income is deposited into it. And upon retirement, the money can be distributed or withdrawn with no tax liability. It is a tax-free retirement account.

IRAs and Tangible Property

An IRA is a tangible property. It consists of tangible property that may include cash, coins, marketable securities, and the like. These assets have a value that can be easily be determined and do not meet any of the criteria laid forth by the IRS in "Publication 535: Business Expenses" that defines intangible property.

IRA, Property, and Bankruptcy

Generally, an IRA is protected if its owner files for bankruptcy.

Congress has protected pensions from bankruptcy and debt collections in the past, but never explicitly addressed IRAs. In 2005, the U.S. Supreme Court ruled that IRAs counted as pensions, and therefore, are protected in bankruptcy cases because the accounts could not be distributed before retirement without a ​10 percent​ penalty.

Do bear in mind that inherited IRAs do not enjoy that kind of protection. So, if you inherit an IRA and later file for bankruptcy, your debtor could come after it because it no longer counts as retirement income. The only exception is if you are a spouse of the person that left you the IRA.

Read More​: Is an IRA a Liquid Asset?

IRAs and Estates

Like other tangible property, an IRA can be distributed to the designated heirs upon the passing of its original owners as part of the deceased’s estate.

Unlike a 401(k) retirement plan, Social Security, and traditional pensions, the IRA is the property of an estate and can be divided among beneficiaries. It can also be drawn upon for distributions by survivors. By owning the IRA as opposed to assets controlled by third parties, it is easier to manage it after the owner dies.

IRA as Property

Generally, an early withdrawal or distribution from an IRA comes with a ​10 percent​ tax penalty on top of income taxes owed from a traditional IRA. Under a Roth IRA, it is permissible to distribute contributions early but not money accrued by the account. And as your property, the money in an IRA can be withdrawn at any time despite tax penalties. Because IRAs are tangible property, it means they are your property and that you are generally allowed to dispose of them as you see fit.

IRAs intangible assets have no physical form even though they provide value to you or your business as the account owner. That said, IRAs are generally tangible property even though they may be restricted from owning many types of physical assets.