Set Off Provisions In Bank Agreement Does Not Override IRA Protection

A caller was concerned that his IRA funds held as his bank’s brokerage department are not protected against an outstanding judgment because of a “set off” provision of the bank’s depositor agreement. The agreement states that “to the extent permitted by applicable law” the lender has a right to set off all of the borrower’s accounts.

Set off pertains to debts owed to the bank where the deposits are held. Set off does not mean that the bank can remove exemptions against debts owed to other creditors. The set off provision of this agreement means that the bank can take money from the caller’s accounts to pay a debt owed to this same bank, but it does not state that the bank can take the depositors money to pay someone else.

The IRA money would be protected against a set-off to the same bank because the set off provision is limited by applicable laws. Because applicable law, Florida law, protects IRA money from creditors the set off provision does not apply to the caller’s IRA funds, and the bank could not take the IRA to pay debts the caller would owe to the same bank.

Page last updated on May 22, 2020

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