Can The IRS Take Your 401k
Written by Brian B

Can The IRS Take Your 401k

Can the IRS take your 401k and/or retirement money, and what can you do to protect your valuable assets?

Why Is The IRS Trying To Levy My 401k?

Retirement accounts are protected from creditors, but the IRS is an exception here. The general rule to know is that if you can get it, then the IRS can get it too. The biggest reason why the IRS would try to levy your 401k or other retirement accounts is because of back taxes owed. A levy from the IRS is essentially a seizure of your assets to cover that tax debt.

The IRS will typically send a notice and demand for the payment to be made to the individual with tax debt. If you ignore the notice, they will send a final notice of intent to levy which will be issued 30 days before the levy occurs. Before the seizure is made, the IRS will investigate assets you own to see if they have sufficient equity to pay off your tax debt, or else the seizure is prohibited.

The IRS can seize all types of retirement accounts from individuals, including your 401k plans. Currently, there are no prohibitions in the IRS code against it. If your only source of money is taking distributions from money still available in your retirement accounts, the IRS will expect you to liquidate the account in order to pay off the taxes.

Can The IRS Take My 401k If I Owe Taxes?

The IRS is able to take your 401k if you are eligible to take distributions from it. The IRS cannot take your 401k money if you are restricted from taking money from your account, stemming from either plan restrictions or age.

Can The IRS Take My Pension Or Retirement Money If I Owe Taxes?

Yes, the IRS has the ability to take your retirement funds if you owe any back taxes. These retirement accounts can be levied by the IRS:

  • IRAs.
  • SEP-IRAs (self-employment).
  • Keogh plans.
  • Company profit sharing.
  • Qualified pension plans.
  • Stock bonus plans.

How To Defend Your Retirement Accounts

The IRS can only get what you can get, so that means if you can’t access it, then neither can the IRS. Many retirement plans deny you access until you either retire, die, take a job with another company or become disable. The IRS cannot force you to terminate your employment, and as long as you stay employed the IRS cannot access your retirement account. If this is the case, the IRS will begin looking into your wages and other personal assets to pay off your tax debt.

If you have access to your retirement money, though, the IRS does too. Whether or not they take that money likely depends on if your conduct leading up to the tax liability was flagrant or not. Flagrant conduct includes tax evasion, fraud or making contributions while taxes go unpaid. If you can prove to the IRS that your conduct was not flagrant or that you depend on this retirement money, the funds cannot be levied.

The IRS will back off if they can establish that they have no rights to your money. For the most part, the IRS is hesitant to take retirement money.

What Should I Do To Keep My 401k?

The best way to protect any accounts, such as a pension and 401k, is to set up a payment plan to pay any back taxes. However, if you deliberately did not pay taxes, the IRS will seize your money. Proving that you need this money for basic living expenses can lower the amount of money the IRS can take.

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