ROUSEY et ux. v. JACOWAY

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320 OCTOBER TERM, 2004
Syllabus
ROUSEY et ux. v. JACOWAY
certiorari to the united states court of appeals for
the eighth circuit
No. 03–1407. Argued December 1, 2004—Decided April 4, 2005
Several years after petitioners deposited distributions from their pension
plans into Individual Retirement Accounts (IRAs), they filed a joint pe-
tition under Chapter 7 of the Bankruptcy Code. They sought to shield
portions of their IRAs from their creditors by claiming them as exempt
from the bankruptcy estate under 11 U. S. C. § 522(d)(10)(E), which pro-
vides, inter alia, that a debtor may withdraw from the estate his “right
to receive . . . a payment under a stock bonus, pension, profitsharing,
annuity, or similar plan or contract on account of . . . age.” Respondent
Jacoway, the Bankruptcy Trustee, objected to the Rouseys’ exemption
and moved for turnover of the IRAs to her. The Bankruptcy Court
sustained her objection and granted her motion, and the Bankruptcy
Appellate Panel agreed. The Eighth Circuit affirmed, concluding that,
even if the Rouseys’ IRAs were “similar plans or contracts” to the plans
specified in § 522(d)(10)(E), their IRAs gave them no right to receive
payment “on account of age,” but were instead savings accounts readily
accessible at any time for any purpose.
Held: The Rouseys can exempt IRA assets from the bankruptcy estate
because the IRAs fulfill both of the § 522(d)(10)(E) requirements at issue
here—they confer a right to receive payment on account of age and they
are similar plans or contracts to those enumerated in § 522(d)(10)(E).
Pp. 325–335.
(a) The Court reaffirms its suggestion in Patterson v. Shumate, 504
U. S. 753, 762–763, that IRAs like the Rouseys’ can be exempted from
the bankruptcy estate pursuant to § 522(d)(10)(E). Pp. 325–326.
(b) The Rouseys’ IRAs provide a right to payment “on account of . . .
age” within § 522(d)(10)(E)’s meaning. The quoted phrase requires that
the right to receive payment be “because of ” age. Bank of America
Nat. Trust and Sav. Assn. v. 203 North LaSalle Street Partnership, 526
U. S. 434, 450–451. This meaning comports with the common, diction-
ary understanding of “on account of,” and § 522(d)(10)(E)’s context does
not suggest another meaning. The statutes governing IRAs persuade
the Court that Jacoway is mistaken in arguing that there is no causal
connection between that right and age or any other factor because the
Rouseys’ IRAs provide a right to payment on demand. Their right to
receive payment of the entire balance is not in dispute. Because their
accounts qualify as IRAs under 26 U. S. C. § 408(a), they have a nonfor-

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Syllabus
feitable right to the balance held in those accounts, § 408(a)(4). That
right is restricted by a 10-percent tax penalty on any withdrawal
made before age 591⁄ 2, § 72(t). Contrary to Jacoway’s contention, this
10-percent penalty is substantial. It applies proportionally to any
amounts withdrawn and prevents access to the 10 percent that the
Rouseys would forfeit should they withdraw early. It therefore effec-
tively prevents access to the entire balance in their IRAs and limits
their right to “payment” of the balance. And because this condition is
removed when the accountholder turns age 591⁄ 2, the Rouseys’ right to
the balance of their IRAs is a right to payment “on account of ” age.
Pp. 326–329.
(c) The Rouseys’ IRAs are “similar plan[s] or contract[s]” to the
“stock bonus, pension, profitsharing, [or] annuity . . . plan[s]” listed in
§ 522(d)(10)(E). To be “similar,” an IRA must be like, though not identi-
cal to, the listed plans or contracts, and consequently must share charac-
teristics common to them. Because the Bankruptcy Code does not de-
fine the listed plans, the Court looks to their ordinary meaning. E. g.,
United States v. LaBonte, 520 U. S. 751, 757. Dictionary definitions
reveal that, although the listed plans are dissimilar to each other in
some respects, their common feature is that they provide income that
substitutes for wages earned as salary or hourly compensation. That
the income the Rouseys will derive from their IRAs is likewise income
that substitutes for wages lost upon retirement is demonstrated by the
facts that (1) regulations require distribution to begin no later than the
calendar year after the year the accountholder turns 701⁄ 2; (2) taxation
of IRA money is deferred until the year in which it is distributed;
(3) withdrawals before age 591⁄ 2 are subject to the 10-percent penalty;
and (4) failure to take the requisite minimum distributions results in a
50-percent tax penalty on funds improperly remaining in the account.
The Court rejects Jacoway’s argument that IRAs cannot be similar
plans or contracts because the Rouseys have complete access to them.
This argument is premised on her view that the 10-percent penalty is
modest, a premise with which the Court does not agree. The Court
also rejects Jacoway’s contention that the availability of IRA withdraw-
als exempt from the early withdrawal penalty renders the Rouseys’
IRAs more like savings accounts. Sections 522(d)(10)(E)(i) through
(iii)—which preclude the debtor from using the § 522(d)(10)(E) exemp-
tion if an insider established his plan or contract; the right to receive
payment is on account of age or length of service; and the plan does not
qualify under specified Internal Revenue Code sections, including the
section governing IRAs—not only suggest generally that the Rouseys’
IRAs are exempt, but also support the Court’s conclusion that they are
“similar plan[s] or contract[s]” under § 522(d)(10)(E). Pp. 329–335.
347 F. 3d 689, reversed and remanded.

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322 ROUSEY v. JACOWAY
Opinion of the Court
Thomas, J., delivered the opinion for a unanimous Court.
Pamela S. Karlan argued the cause for petitioners. With
her on the briefs were Thomas C. Goldstein, Amy Howe,
Claude R. Jones, and G. Eric Brunstad, Jr.
Colli C. McKiever argued the cause for respondent. With
her on the brief were Jill R. Jacoway, pro se, Seth P. Wax-
man, Craig Goldblatt, and Jorian Rose.*
Justice Thomas delivered the opinion of the Court.
The Bankruptcy Code permits debtors to exempt certain
property from the bankruptcy estate, allowing them to re-
tain those assets rather than divide them among their credi-
tors. 11 U. S. C. § 522. The question in this case is whether
debtors can exempt assets in their Individual Retirement
Accounts (IRAs) from the bankruptcy estate pursuant to
§ 522(d)(10)(E). We hold that IRAs can be so exempted.
I
Petitioners Richard and Betty Jo Rousey were formerly
employed at Northrup Grumman Corp. At the termination
of their employment, Northrup Grumman required them to
take lump-sum distributions from their employer-sponsored
pension plans. In re Rousey, 283 B. R. 265, 268 (Bkrtcy.
App. Panel CA8 2002); Brief for Petitioners 2. The Rouseys
deposited the lump sums into two IRAs, one in each of their
names. 283 B. R., at 268.
The Rouseys’ accounts qualify as IRAs under a number of
requirements imposed by the Internal Revenue Code. Each
account is “a trust created or organized in the United States
for the exclusive benefit of an individual or his beneficiar-
ies.” 26 U. S. C. § 408(a) (2000 ed. and Supp. II). The In-
*Patricia J. Kaeding, Brady C. Williamson, Elizabeth Warren, Jean
Constantine-Davis, Nina F. Simon, and Michael R. Schuster filed a brief
for AARP as amicus curiae urging reversal.

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ternal Revenue Code limits the types of assets in which
IRA-holders may invest their accounts, §§ 408(a)(3), (a)(5),
and provides that the balance in IRAs is nonforfeitable,
§ 408(a)(4). It also caps yearly contributions to IRAs.
§ 408(o)(2). Withdrawals made before the accountholder
turns 591 ⁄ 2 are, with limited exceptions, subject to a 10-
percent tax penalty. § 72(t).
IRA contributions receive favorable tax treatment. In
particular, the Internal Revenue Code generally defers taxa-
tion of the money placed in IRAs and the income earned
from those sums until the assets are withdrawn. See
§ 219(a) (contributions to IRAs are tax deductible); § 408(e)(1)
(IRA is tax exempt). Moreover, within a certain timeframe
accountholders can, as the Rouseys did here, roll over distri-
butions received from other retirement plans. § 408(a)(1).
The Internal Revenue Code encourages such rollovers by
making them nontaxable. §§ 408(d)(3), 402(c)(1), 403(b)(8),
and 457(e)(16).
The Rouseys’ IRA agreements, as well as relevant regula-
tions, provide that their “entire interest in the custodial ac-
count must be, or begin to be, distributed by” April 1 follow-
ing the calendar yearend in which they reach age 701 ⁄ 2.
In re Rousey, 275 B. R. 307, 310 (Bkrtcy. Ct. WD Ark. 2002).
The IRA agreements permit withdrawal prior to age 591 ⁄ 2,
but note the federal tax penalties applicable to such distribu-
tions. Id., at 311.
Several years after establishing their IRAs, the Rouseys
filed a joint Chapter 7 bankruptcy petition in the United
States Bankruptcy Court for the Western District of Arkan-
sas. In the schedules and statements accompanying their
petition, the Rouseys sought to shield portions of their IRAs
from their creditors by claiming them as exempt from the
bankruptcy estate pursuant to 11 U. S. C. § 522(d)(10)(E).
This exemption provides that a debtor may withdraw from
the bankruptcy estate his “right to receive—
. . . . .

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“(E) a payment under a stock bonus, pension, profit-
sharing, 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 . . . .”
The Bankruptcy Court appointed respondent Jill R. Jacoway
as the Chapter 7 Trustee. As Trustee, Jacoway is responsi-
ble for overseeing the liquidation of the bankruptcy estate
and the distribution of the proceeds. She objected to the
Rouseys’ claim for the exemption of their IRAs and moved
for turnover of those sums to her. The Bankruptcy Court
sustained Jacoway’s objection and granted her motion. 275
B. R., at 309.
The Rouseys appealed. The Bankruptcy Appellate Panel
(BAP) agreed with the Bankruptcy Court that the Rouseys
could not exempt their IRAs under § 522(d)(10)(E). It con-
cluded that the IRAs were not “ ‘similar plan[s] or con-
tract[s]’ ” to stock bonus, pension, profitsharing, or annuity
plans, because, by contrast to the limited access permitted
in such plans, the Rouseys had “unlimited access” to the
funds held in their IRAs. 283 B. R., at 272. That access
also meant, the BAP reasoned, that the Rouseys had com-
plete control over the funds in their IRAs, “subject only to
a ten percent tax penalty.” Id., at 273. Because they had
such control, the payments from the IRAs were not “on
account of any factor listed in 11 U. S. C. § 522(d)(10)(E).”
Ibid.
The Rouseys again appealed, and the Court of Appeals for
the Eighth Circuit affirmed. The Court of Appeals con-
cluded that, even if the Rouseys’ IRAs were “ ‘similar plans
or contracts’ ” to stock bonus, pension, profitsharing, or annu-
ity plans, their IRAs gave them no right to receive payment
“ ‘on account of age.’ ” In re Rousey, 347 F. 3d 689, 693
(2003). Like the BAP, the Court of Appeals reasoned that

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the Rouseys’ right to payment was conditioned neither on
age nor on any of the other statutory factors. Their IRAs
were instead “readily accessible savings accounts of which
the debtors may easily avail themselves (albeit with some
discouraging tax consequences) at any time for any purpose.”
Ibid. The Court of Appeals recognized that several of its
sister Circuits had reached a contrary result. Ibid. See
In re Brucher, 243 F. 3d 242, 243–244 (CA6 2001); In re Mc-
Kown, 203 F. 3d 1188, 1190 (CA9 2000); In re Dubroff, 119
F. 3d 75, 78 (CA2 1997); In re Carmichael, 100 F. 3d 375, 378
(CA5 1996).
We granted certiorari to resolve this division among the
Courts of Appeals regarding whether debtors can exempt
IRAs from the bankruptcy estate under 11 U. S. C.
§ 522(d)(10)(E). 541 U. S. 1085 (2004).
II
As a general matter, upon the filing of a petition for bank-
ruptcy, “all legal or equitable interests of the debtor in prop-
erty” become the property of the bankruptcy estate and will
be distributed to the debtor’s creditors. § 541(a)(1). 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. See,
e. g., § 522(d); United States v. Security Industrial Bank, 459
U. S. 70, 72, n. 1 (1982). In this case, the Rouseys claimed
their IRAs as exempt under § 522(d)(10)(E). Under the
terms of the statute, see supra, at 323–324, the Rouseys’
right to receive payment under their IRAs must meet three
requirements to be exempted under this provision: (1) The
right to receive payment must be from “a stock bonus, pen-
sion, profitsharing, annuity, or similar plan or contract”;
(2) the right to receive payment must be “on account of ill-
ness, disability, death, age, or length of service”; and (3) even
then, the right to receive payment may be exempted only

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“to the extent” that it is “reasonably necessary [to] support”
the accountholder or his dependents. § 522(d)(10)(E).
The dispute in this case is whether the Rouseys’ IRAs
fulfill the first and second requirements. This Court implied
that IRAs like the Rouseys’ satisfy both elements in Patter-
son v. Shumate, 504 U. S. 753 (1992). There, in construing
another section of the Bankruptcy Code, this Court stated
that IRAs could be exempted pursuant to § 522(d)(10)(E).
Id., at 762–763 (“Although a debtor’s interest [in an IRA]
could not be excluded under § 541(c)(2) . . . , that interest
nevertheless could be exempted under § 522(d)(10)(E)” (foot-
note omitted)). We now reaffirm that statement and con-
clude that IRAs can be exempted from the bankruptcy
estate pursuant to § 522(d)(10)(E).
A
We turn first to the requirement that the payment be “on
account of illness, disability, death, age, or length of service.”
Ibid. We have interpreted the phrase “on account of ” else-
where within the Bankruptcy Code to mean “because of,”
thereby requiring a causal connection between the term that
the phrase “on account of ” modifies and the factor specified
in the statute at issue. Bank of America Nat. Trust and
Sav. Assn. v. 203 North LaSalle Street Partnership, 526 U. S.
434, 450–451 (1999). In reaching that conclusion, we noted
that “because of ” was “certainly the usage meant for the
phrase at other places in the [bankruptcy] statute,” including
the provision at issue here—§ 522(d)(10)(E). Ibid. This
meaning comports with the common understanding of “on
account of.” See, e. g., Random House Dictionary of the
English Language 13 (2d ed. 1987) (listing as definitions “by
reason of,” “because of ”); Webster’s Third New Interna-
tional Dictionary 13 (1981) (hereinafter Webster’s 3d) (same).
The context of this provision does not suggest that Congress
deviated from the term’s ordinary meaning. Thus, “on ac-
count of ” in § 522(d)(10)(E) requires that the right to receive

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payment be “because of ” illness, disability, death, age, or
length of service.
Jacoway argues that the Rouseys’ right to receive pay-
ment from their IRAs is not “because of ” these listed factors.
In particular, she asserts that the Rouseys can withdraw
funds from their IRAs for any reason at all, so long as they
are willing to pay a 10-percent penalty. Thus, Jacoway
maintains that there is no causal connection between the
Rouseys’ right to payment and age (or any other factor), be-
cause their IRAs provide a right to payment on demand.
We disagree. The statutes governing IRAs persuade us
that the Rouseys’ right to payment from IRAs is causally
connected to their age. Their right to receive payment of
the entire balance is not in dispute. Because their accounts
qualify as IRAs under 26 U. S. C. § 408(a) (2000 ed. and Supp.
II), the Rouseys have a nonforfeitable right to the balance
held in those accounts, § 408(a)(4). That right is restricted
by a 10-percent tax penalty that applies to withdrawals from
IRAs made before the accountholder turns 591 ⁄ 2. Contrary
to Jacoway’s contention, this tax penalty is substantial. The
deterrent to early withdrawal it creates suggests that Con-
gress designed it to preclude early access to IRAs. The low
rates of early withdrawals are consistent with the notion
that this penalty substantially deters early withdrawals from
such accounts.1 Because the 10-percent penalty applies pro-
1 See Amromin & Smith, What Explains Early Withdrawals from Re-
tirement Accounts? Evidence From a Panel of Taxpayers, 56 Nat. Tax J.
595, 602 (Sept. 2003) (Table 1) (3.4 percent of IRA-holders took penalized
withdrawals in 1996); In re Cilek, 115 B. R. 974, 988, n. 15 (Bkrtcy. Ct.
WD Wis. 1990) (“[O]f the $6,457,306,674 deposited in IRAs in the nation’s
credit unions, only 1.2% was withdrawn early and suffered a tax penalty
during 1987, and only 1.27% was withdrawn during 1988”); see also Sabel-
haus, Projecting IRA Balances and Withdrawals, 20 Employee Benefit Re-
search Institute Notes 1, 3 (May 1999) (finding that “[t]he pattern in both
[1993 and 1996] suggests infrequent withdrawals from IRAs” by those
under 591⁄ 2 and noting the consistency of this pattern with the view that
the penalty “has a big impact on withdrawal behavior”).

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portionally to any amounts withdrawn, it prevents access to
the 10 percent that the Rouseys would forfeit should they
withdraw early, and thus it effectively prevents access to
the entire balance in their IRAs.2 It therefore limits the
Rouseys’ right to “payment” of the balance of their IRAs.
And because this condition is removed when the account-
holder turns age 591 ⁄ 2, the Rouseys’ right to the balance of
their IRAs is a right to payment “on account of ” age.3 The
Rouseys no more have an unrestricted right to payment of
the balance in their IRAs than a contracting party has an
unrestricted right to breach a contract simply because the
price of doing so is the payment of damages.4 Accordingly,
2 We need not and do not reach the question whether penalties of less
than 10 percent or of a fixed amount would also be a sufficient barrier to
early withdrawal.
3 The Rouseys are entitled to penalty-free distributions because of
factors apart from age in certain circumstances. See 26 U. S. C.
§§ 72(t)(2)(A)(ii)–(iv) (permitting penalty-free distributions due to the
death of or disability of the IRA-holder, or as substantially equal periodic
payments for the life expectancy of the accountholder); § 72(t)(2)(B) (medi-
cal expenses); §§ 72(t)(2)(D)–(F) (health insurance premiums, certain
higher education expenses, and first-time home purchase). But these cir-
cumstances are confined to specific and narrow uses. See infra, at 332–
334. Thus, that there are other circumstances in which the Rouseys can
receive payment does not change our conclusion that they have a right to
payment on account of age, for these exceptions do not undermine the fact
that they cannot obtain unrestricted use of their funds until age 591⁄ 2.
Moreover, § 522(d)(10)(E) requires that the right to payment be on account
of age—not that it be solely on account of this factor.
4 O’Gilvie v. United States, 519 U. S. 79 (1996), and Commissioner v.
Schleier, 515 U. S. 323 (1995), upon which Jacoway relies, Brief for Re-
spondent 17–19, are consistent with our conclusion that petitioners’ IRAs
satisfy the statute’s “on account of ” requirement. Those cases involved
the meaning of the phrase “on account of ” in a tax provision that permit-
ted the exclusion from income of damages received “ ‘on account’ of per-
sonal injuries.” O’Gilvie, supra, at 81 (emphasis deleted); Schleier,
supra, at 329. In both cases, we rejected the claim that damages that
were punitive in nature were on account of personal injuries, since such
damages did not compensate for the personal injuries. O’Gilvie, supra,
at 83–84; Schleier, supra, at 331–332. In so holding in O’Gilvie, we ex-

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we conclude that the Rouseys’ IRAs provide a right to pay-
ment on account of age.
B
In addition to requiring that the IRAs provide a right to
payment “on account of ” age or one of the other factors listed
in the statute, 11 U. S. C. § 522(d)(10)(E) also requires the
Rouseys’ IRAs to be “stock bonus, pension, profitsharing, an-
nuity, or similar plan[s] or contract[s].” No party contends
that the Rouseys’ IRAs are stock bonus, pension, profit-
sharing, or annuity plans or contracts. The issue, then, is
whether the Rouseys’ IRAs are “similar plan[s] or con-
tract[s]” within the meaning of § 522(d)(10)(E). To be “simi-
lar,” an IRA must be like, though not identical to, the specific
plans or contracts listed in § 522(d)(10)(E), and consequently
must share characteristics common to the listed plans or con-
tracts. See American Heritage Dictionary of the English
Language 1206 (1981) (hereinafter Am. Hert.); Webster’s 3d
2120.
The Rouseys contend that IRAs are “similar” to stock
bonus, pension, profitsharing, or annuity plans or contracts,
in that they have the same “primary purpose,” namely, “en-
abl[ing] Americans to save for their retirement.” Reply
Brief for Petitioners 13. Jacoway counters that IRAs are
unlike the listed plans because those plans provide “deferred
compensation,” Brief for Respondent 22, whereas IRAs
allow complete access to deposited funds and are therefore
not deferred at all, id., at 22–24. We agree with the
Rouseys that IRAs are similar to the plans specified in the
statute. Those plans, like the Rouseys’ IRAs, provide a sub-
stitute for wages (by wages, for present purposes, we mean
compensation earned as hourly or salary income), and are
not mere savings accounts. The Rouseys’ IRAs are there-
pressly rejected a “but for” causation reading of the statute. See 519
U. S., at 82–83. We instead concluded, as we have here, that the phrase
“on account of ” means “ ‘by reason of[, or] because of.’ ” Id., at 83.

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330 ROUSEY v. JACOWAY
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fore “similar plan[s] or contract[s]” within the meaning of
§ 522(d)(10)(E).
We turn first to the characteristics the specific plans and
contracts listed in § 522(d)(10)(E) share. The Bankruptcy
Code does not define the terms “profitsharing,” “stock
bonus,” “pension,” or “annuity.” Accordingly, we look to
the ordinary meaning of these terms. United States v.
LaBonte, 520 U. S. 751, 757 (1997); Perrin v. United States,
444 U. S. 37, 42 (1979). A “profitsharing” plan, of course, is
“[a] system by which employees receive a share of the profits
of a business enterprise.” Am. Hert. 1045.5 Profitsharing
plans may provide deferred compensation, but they may also
be “cash plans” in which a predetermined percentage of the
profits is distributed to employees at set intervals. J. Lang-
bein & B. Wolk, Pension and Employee Benefit Law 48 (3d
ed. 2000). A stock bonus plan is like a profitsharing plan,
except that it distributes company stock rather than cash
from profits. Id., at 49.6 A pension is defined as “a fixed
sum . . . paid under given conditions to a person following
his retirement from service (as due to age or disability) or to
the surviving dependents of a person entitled to such a pen-
sion.” Webster’s 3d 1671.7 Finally, an annuity is “an
amount payable yearly or at other regular intervals . . . for
a certain or uncertain period (as for years, for life, or in per-
petuity).” Id., at 88.8
5 See also 12 Oxford English Dictionary 580 (2d ed. 1989) (OED) (“[T]he
sharing of profits, spec. between employer and employed”); Webster’s 3d
1811 (“[A] system or process under which employees receive a part of the
profits of an industrial or commercial enterprise”).
6 See also id., at 2247 (defining “stock bonus” as “a bonus paid to corpora-
tion executives and employees in shares of stock”).
7 See also Am. Hert. 970 (“sum of money paid regularly as a retirement
benefit or by way of patronage”).
8 See also id., at 54 (“[T]he annual payment of an allowance or income”;
“[t]he interest or dividends paid annually on an investment of money”); 1
OED 488 (“[a] yearly grant, allowance, or income,” or “[a]n investment of
money, whereby the investor becomes entitled to receive a series of equal

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The common feature of all of these plans is that they pro-
vide income that substitutes for wages earned as salary or
hourly compensation. This understanding of the plans’ simi-
larities comports with the other types of payments that a
debtor may exempt under § 522(d)(10)—all of which concern
income that substitutes for wages. See, e. g., § 522(d)(10)(A)
(“social security benefit, unemployment compensation, or a
local public assistance benefit”); § 522(d)(10)(B) (“a veterans’
benefit”); § 522(d)(10)(C) (“disability, illness, or unemploy-
ment benefit”); § 522(d)(10)(D) (“alimony, support, or separate
maintenance”). But the plans are dissimilar in other re-
spects: Employers establish and contribute to stock bonus,
profitsharing, and pension plans or contracts, whereas an in-
dividual can establish and contribute to an annuity on terms
and conditions he selects. Moreover, pension plans and an-
nuities provide deferred payment, whereas profitsharing or
stock bonus plans may or may not provide deferred payment.
And while a pension provides retirement income, none of
these other plans necessarily provides retirement income.
What all of these plans have in common is that they provide
income that substitutes for wages.
Several considerations convince us that the income the
Rouseys will derive from their IRAs is likewise income that
substitutes for wages. First, the minimum distribution re-
quirements, as discussed above, require distribution to begin
at the latest in the calendar year after the year in which the
accountholder turns 701 ⁄ 2. Thus, accountholders must begin
to withdraw funds when they are likely to be retired and
lack wage income. Second, the Internal Revenue Code de-
fers taxation of money held in accounts qualifying as IRAs
under 26 U. S. C. § 408(a) (2000 ed. and Supp. II) until the
year in which it is distributed, treating it as income only in
such years. §§ 219, 408(e) (2000 ed. and Supp. II). This tax
treatment further encourages accountholders to wait until
annual payments, which, except in the case of perpetual annuities, includes
the ultimate return of both principal and interest”).

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retirement to withdraw the funds: The later withdrawal oc-
curs, the longer the taxes on the amounts are deferred.
Third, absent the applicability of other exceptions discussed
above, withdrawals before age 591 ⁄ 2 are subject to a tax pen-
alty, restricting preretirement access to the funds. Finally,
to ensure that the beneficiary uses the IRA in his retirement
years, an accountholder’s failure to take the requisite mini-
mum distributions results in a 50-percent tax penalty on
funds improperly remaining in the account. § 4974(a). All
of these features show that IRA income substitutes for
wages lost upon retirement and distinguish IRAs from typi-
cal savings accounts.
We find unpersuasive Jacoway’s contention that the IRAs
cannot be similar plans or contracts because the Rouseys
have complete access to them. At bottom, this contention
rests, as did her “on account of ” argument, on the premise
that the tax penalty imposed for early withdrawal is modest
and hence not a true limit on the withdrawal of funds. As
explained above, however, that penalty erects a substantial
barrier to early withdrawal. Supra, at 327–328. Funds in
a typical savings account, by contrast, can be withdrawn
without age-based penalty.
We also reject Jacoway’s argument that the availability of
IRA withdrawals exempt from the 10-percent penalty ren-
ders the Rouseys’ IRAs more like savings accounts. While
Jacoway is correct that the Internal Revenue Code permits
penalty-free early withdrawals in certain limited circum-
stances, 26 U. S. C. § 72(t)(2), these exceptions do not reduce
the IRAs to savings accounts.
The exceptions are narrow. For example, penalty-free
early distributions for health insurance premiums are limited
to unemployed individuals who have received unemployment
compensation for at least 12 consecutive weeks and have
taken those distributions during the same year in which the
unemployment compensation is made. § 72(t)(2)(D). These
payments are further limited to the actual amount paid for

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333 Cite as: 544 U. S. 320 (2005)
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insurance for the accountholder, his spouse, and his depend-
ents. § 72(t)(2)(D)(iii). The Internal Revenue Code like-
wise caps the amount of, and sets qualifications for, both the
higher education expenses and first-time home purchases
for which penalty-free early distributions can be taken.
§§ 72(t)(2)(E), 72(t)(7) (higher education expenses); §§ 72(t)
(2)(F), 72(t)(8) (home purchases). The Internal Revenue
Code also permits penalty-free distributions to a beneficiary
on the death of the accountholder or in the event that the
accountholder becomes disabled. §§ 72(t)(2)(A)(ii)–(iii).9
These exceptions are limited in amount and scope. Even
with these carveouts, an early withdrawal without penalty
remains the exception, rather than the rule. And as we ex-
plained in discussing the “on account of ” requirement, with-
drawals from other retirement plans receive similar tax
treatment.
Our conclusion that the Rouseys’ IRAs can be exempt
under 11 U. S. C. § 522(d)(10)(E) finds support in clauses (i)–
(iii) of § 522(d)(10)(E). These clauses bring into the estate
certain rights to payment that otherwise would be exempt
under § 522(d)(10)(E). They provide that a right to receive
payment cannot be exempt if:
“(i) such plan or contract was established by or under
the auspices of an insider that employed the debtor at
9 The statute also permits penalty-free early withdrawal in the form of
substantially equal periodic payments made for the life expectancy of the
accountholder. 26 U. S. C. § 72(t)(2)(iv). This exception is likewise lim-
ited. If these payments are modified before the accountholder turns 591⁄ 2
or within five years of the start of those payments, the accountholder must
pay not only the taxes that would have been imposed on those previous
payments, including the 10-percent penalty, but also interest for the period
in which the tax payment was deferred. § 72(q)(3). As a result, if an
accountholder uses this exception, he must use only this form of early
withdrawal, lest he pay the penalty, taxes, and interest. The statute per-
mits penalty-free withdrawals for medical expenses, which is likewise lim-
ited. § 72(t)(2)(B). The amount that can be withdrawn is capped by the
amount that can be deducted in a given year. Ibid.

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334 ROUSEY v. JACOWAY
Opinion of the Court
the time the debtor’s rights under such plan or con-
tract arose;
“(ii) such payment is on account of age or length of
service; and
“(iii) such plan or contract does not qualify under sec-
tion 401(a), 403(a), 403(b) or 408 of the Internal Revenue
Code of 1986.”
Thus, clauses (i)–(iii) preclude the debtor from using this ex-
emption if an insider established his plan or contract; the
right to receive payment is on account of age or length of
service; and the plan does not qualify under the specified
Internal Revenue Code sections, including the section that
governs IRAs, 26 U. S. C. § 408 (2000 ed. and Supp. II).
As a general matter, it makes little sense to exclude from
the exemption plans that fail to qualify under § 408, unless
all plans that do qualify under § 408, including IRAs, are gen-
erally within the exemption. If IRAs were not within 11
U. S. C. § 522(d)(10)(E), Congress would not have referred to
them in its exception. McKown, 203 F. 3d, at 1190. More
specifically, clause (iii) suggests that plans qualifying under
26 U. S. C. § 408 (2000 ed. and Supp. II), including IRAs, are
similar plans or contracts. The other sections of the Inter-
nal Revenue Code cited in clause (iii)—§§ 401(a), 403(a), and
403(b)—all establish requirements for tax-qualified retire-
ment plans that take the form of, among other things, annu-
ities, profitsharing plans, and stock bonus plans. By group-
ing § 408 with these other plans that are of the specific types
listed in subparagraph (E), clause (iii) suggests that IRAs
are similar to them. Thus, the text of these clauses not only
suggests generally that the Rouseys’ IRAs are exempt, but
also supports our conclusion that they are “similar plan[s] or
contract[s]” under 11 U. S. C. § 522(d)(10)(E).
* * *
In sum, the Rouseys’ IRAs fulfill both of § 522(d)(10)(E)’s
requirements at issue here—they confer a right to receive

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payment on account of age, and they are similar plans or
contracts to those enumerated in § 522(d)(10)(E). The judg-
ment of the Court of Appeals is therefore reversed, and the
case is remanded for further proceedings consistent with
this opinion.
It is so ordered.