Can The IRS Take Your 401k
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Can The IRS Take Your 401k

Are you wondering if the IRS can take your 401k and other retirement accounts? Let’s look at what the IRS can do and how you can protect your funds.

Why Is The IRS Trying To Take My 401k Or Retirement Money?

Although retirement accounts are protected from creditors, the IRS is an exception. The general rule says if you can get it, the IRS can too. The biggest reason why the IRS may try to levy your 401k, retirement or pension accounts is because you owe back taxes. Essentially, an IRS levy is a seizure of your assets to cover said tax debt.

The IRS will usually send a notice plus demand for payment to be made. If an individual ignores this notice, the IRS will send a final notice of intent to levy. This will be issued 30 days in advance, on average. Before the IRS performs the seizure, they will investigate your assets to see if you have sufficient equity to pay off your back taxes or else the seizure is prohibited.

The IRS can seize all types of retirement accounts, including 401k plans, IRAs and other self-employed plans like SEP-IRAs and Keogh plans. If, for example, your only source of money is taking distributions from money available in retirement accounts, the IRS does expect you to liquidate the account in order to pay off taxes.

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

Yes, the IRS is able to take your 401k account if you are eligible to take distributions from the account. The IRS is unable to take your 401k money if you are restricted from taking money from the account due to age or other restrictions.

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

Again, yes, the IRS can take your retirement money in the event you owe back taxes. Retirement accounts that can be levied by the IRS include the following:

  • IRAs.
  • Keogh plans.
  • SEP-IRAs.
  • Stock bonus plans.
  • Qualified pension plans.
  • Company profit sharing.

Can The IRS Take My Pension If I Owe Taxes?

Your pension is not a protected asset, meaning the IRS can take it. The IRS can also take money from your bank account, Social Security benefits and even your home, depending on how much money you owe. Before performing a levy, though, the IRS will usually give you options to pay the money back.

How To Defend Your IRA And Retirement Accounts

To defend your accounts against an IRS seizure, you must know the IRS can only get what you get. For example, if you can’t access retirement money, neither can the IRS. Many retirement plans deny you access until you retire, take a job with another company, become disabled or pass away.

The IRS cannot force you to terminate your employment, so the as long as you stay employed, the IRS cannot access your accounts. In this case, the IRS will look into your wages/assets to pay taxes you owe. However, if you do have access to your retirement account(s), the IRS does as well.

Whether or not the IRS will take money out of that fund depends on if your conduct leading up to the tax liability was flagrant or not. Flagrant conduct includes such actions as tax evasion, fraud or making contributions while taxes are owed. If you can prove your conduct was not flagrant or that you depend on the retirement money, the funds cannot be levied.

The IRS is typically hesitant to take retirement funds, but knowing how to protect yourself from seizure is crucial. Setting up a plan to pay back taxes is the best way to protect your retirement accounts. You will also have the chance to prove you rely on these funds.

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