There are many reasons why a creditor may file to place a lien or seize a person’s assets with the various court systems. Unpaid debt is the leading cause of companies continuing their collection process to recoup monies owed. However, in most situations, a person’s retirement plan is safe from being seized. That is, unless the person owes money for back taxes. When it comes to taxes, the government can and often does move forward with a retirement plan seizure.
When the creditor is the IRS, nothing is safe. The IRS has the authority to seize 401(k) plans, IRAs, Social Security benefits and pension benefits. In most cases, the IRS will go after retirement plans when all other means of collecting the money owed have been exhausted. Keep in mind, the IRS can only access retirement money that is available. If the taxpayer does not have access to the money, the IRS cannot get it either. But once that money is available, the IRS has first right to access the money.
The main reason why the IRS would look at seizing a retirement account is when someone has a large amount of back taxes. Prior to threatening retirement accounts, the IRS will send letters and notices demanding payment. Retirement accounts are at risk of seizure when these notices have been ignored or have not been unacknowledged. They are also at risk if there are no other assets available to settle a back tax debt.
It is possible to defend retirement accounts from being seized. The first method is to show proof that the money is currently needed for survival or will be in the near future. The second method is to start an open conversation with the IRS. Let them know your situation and explain why the retirement account is needed. By ignoring the IRS and keeping them away from the money will make it look like a person is evading their tax responsibility.
As mentioned above, the IRS cannot access money if the taxpayer cannot. Many retirement plans deny access until retirement, death, becoming disabled or taking a job with another company.
As mentioned above, The IRS may legally access retirement plan money if the taxpayer has access to the retirement funds. Some circumstances under which retirement plans may be considered accessible include taking a job with another company, when becoming disabled, upon retirement and ultimately death. If it can be proven a taxpayer cannot access the money or they need their retirement money to survive, the IRS may back off. The IRS typically does not go right for retirement accounts and these accounts can be protected from a tax levy.
Those wondering if the IRS can seize their retirement accounts or not should take the time to seek a professional help. Certified tax professionals can help to determine if the accounts are at risk. A tax attorney or tax expert with knowledge of the process and sharp negotiating skills is the best defense against IRS collection actions.