Can the IRS seize your IRA or 401k for back taxes?
The IRS can seize your IRA or 401k for back taxes, though there are rules about how much the agency can take at once. The IRS may also seize pension money you have a right to receive now or in the future, known as vested pension rights. Vested rights are complicated even in ordinary circumstances. When a potential IRS seizure enters the picture, seeking advice from our team of tax attorneys at Ayar Law is advisable to learn whether your particular pension is subject to seizure.
Since 2012, we have represented taxpayers before the IRS, Federal, and State of Michigan courts – even before the United States Supreme Court. We are experienced tax lawyers who represent individuals and businesses dealing with tax challenges.
What Kinds of Accounts Can the IRS Seize?
The IRS can seize a wide variety of retirement accounts of taxpayers who have unpaid taxes. They include:
- 401(k) Plan
- Stock Bonus Plan
- Company Profit Sharing
- Defined Benefit Pension Plan
- Individual Retirement Account (IRA)
How Much Can the IRS Garnish?
The IRS may garnish up to twenty-five percent (25%) of your income from a retirement account. In addition to pensions and retirement accounts, the IRS may take up to fifteen percent (15%) of your Social Security check under the Federal Payment Levy Program. In a departure from earlier practice, the law was amended to permit the levy of funds even when the remaining benefit falls below $750. However, Social Security Disability Insurance benefits (SSDI) are exempt from the levy program and may not be garnished.
Options to reduce the risk of the IRS seizing an account
Seizing retirement funds is typically not the first option for the IRS. This step typically occurs after the agency has exhausted other attempts to recover delinquent taxes. Therefore, the IRS encourages taxpayers to avail themselves of tax relief options to avoid a a levy on retirement funds. Such options may include measures such as:
- Liquidating other assets to pay back taxes
- Requesting extensions of time to pay taxes
- Requesting a hardship exemption from the IRS
- Settling tax debt with the IRS (Offer in Compromise)
- Making partial payments if unable to pay taxes in full
- Setting up a payment plan with the IRS for taxes that are due
Notification and Appeal
As noted, the IRS will not initially seize your retirement funds when you have unpaid taxes. However, when the bill goes unpaid, and you have not made a good faith effort to communicate with the agency, you may be placing yourself in jeopardy of enforcement against your retirement assets. Again, the advice of an experienced tax attorney can make all the difference in reaching a resolution to protect your assets.
How Much Time Do You Have to Appeal After Being Notified?
You will have 30 days after receiving notice of a levy against your retirement assets to request an appeal. Seizure of retirement funds typically won’t come as a surprise. The IRS will warn you first with a notice of intent to levy. The notice is mailed to your home or office.
The notice starts the clock ticking on the 30 days you will have to appeal the levy. The notice also informs you of other important ramifications that ensue when the IRS places a levy on your assets, including:
- The IRS can file a public Notice of Federal Tax Lien
- An IRS lien is a public notice to creditors of the IRS’s interest in your assets
- The lien results in the denial of a new U.S. Passport or reissuance of a U.S. Passport
There are exceptions to the general rule regarding advance notice of a levy. You may not receive advance notice when:
- Collection of tax is in jeopardy
- IRS levies your state tax refund
- Federal contractor levy is served
- The levy concerns disqualified employment tax
Contact us at Ayar Law
Ayar Law’s experienced tax lawyers represent individuals with serious tax challenges. Whether these problems are related to you or your spouse, our attorneys can help with a wide range of issues, including protecting your retirement assets. You should never face this alone. We can resolve your tax problems with the urgency, personal attention, and confidentiality you deserve. Contact us to learn more or for a free, no-obligation consultation on your tax issues.