Can the IRS Take My Retirement Money?

If you owe in back taxes, the IRS can garnish your wages, 401k, IRA, freeze your bank accounts, and seize and sell your personal property. This includes your home, your vehicle, and anything else you might own that could be of significant financial value. You may end up facing these threats for years, which is, unfortunately, something that the IRS has the legal power to do.


Retirement accounts may be withheld or frozen in extreme cases, such as if you owe well into the thousands and haven't yet made arrangements to pay.

Thankfully, there are some ways in which these assets may be rightfully protected from the collection actions of the Internal Revenue Service.

What Steps are Taken by the IRS?

The process typically begins with a warning letter from the Internal Revenue Service that warns you of these actions that they are about to take if you don't make your payments. The letter is known as a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, which is something that allows the person who owes ample time to contact an IRS agent right away to try and make a payment.

There are steps that are taken by the IRS that must be done right before the tax levy is to take place. The first is a general assessment of the tax you owe plus a Notice and Demand for Payment. This means that the money is due upon receipt and must be paid to avoid further penalties. You will get a notice that informs you of your taxpayer rights, including your right to a fair hearing. This may be delivered in person, such as your home or place of employment, or by mail in the form of a certified letter.

The IRS reserves the right to contact any third parties if something happens and they cannot get a hold of you. This includes employers, your spouse, personal friends, and anyone else who knows you well. They will do this with the full intention of collecting the money that's due to the government. In the case of federal taxes, the Internal Revenue Service also reserves the right to garnish your state return in an attempt to collect back taxes.

What Will Happen To My Retirement Accounts?

The IRS can even go so far as to seize your retirement and 401K accounts, with some stipulations. This is especially true in cases where you may qualify to receive dividends from the account. This is where the option of a good payment plan comes into play. No matter what type of horror stories you may have heard from others regarding the various collection tactics the IRS can employ, you can rest assured that they are just like any other collector in that they will not just automatically march in and take everything without first making the right arrangements and certainly not without a decent and timely warning.

Retirement accounts may be withheld or frozen in extreme cases, such as if you owe well into the thousands and haven't yet made arrangements to pay. Making these arrangements is critical to keeping your personal property and assets secure and safe from seizure by the federal government. The IRS can seize anything that's not needed for your immediate survival, and that includes vehicles, jewelry made of precious metals. With bank accounts, however, the story is similar but slightly different. Yes, it is true that the IRS can freeze your checking and savings accounts, but the good news is that there is a grace period of three weeks. During this time, your bank must hold that money before they turn it over to the Internal Revenue Service.

What Can I do if I Can't Pay the IRS?

Thankfully, there are some ways in which these assets may be rightfully protected from the collection actions of the Internal Revenue Service. For example, if you happen to still be working for the same employer that opened your retirement account, then the most that the IRS can do is garnish your wages. If you're single with no dependents, they can take as much as $538 per check. The bad news is that any employer can terminate you after three consecutive wage garnishments. Therefore, it's best to make suitable payment arrangements with an agent and stick with them.

Pension plans such as Social Security benefits are not exactly safe from IRS collections. In fact, there is that possibility that these, too, can be tapped into in an effort to collect the money needed to satisfy what you owe. Keep in mind that garnishments can happen anytime and without warning, and the IRS does not need a court order to start these benefit garnishments. In fact, they are allowed to take up to 15 percent of your Social Security check in order to pay off your back taxes.

The IRS Fresh Start program is another option for single filers who owe back taxes but have no liens against them. This means that taxpayers who owe massive amounts of money can get a good break in the form of reasonable installment payments. This started in 2011 and was created for those who owed around $5,000 but was raised to $25,000 shortly after its passage. This resulted in far fewer federal tax liens being filed against taxpayers and more money being paid as it should be.

The federal government has a list of qualifications for those who apply. The first is that the total amount you owe cannot exceed $50,000. If it does, you must be willing to demonstrate your ability to pay it down to that amount in a timely manner. Additionally, the IRS will grant you a period of 60 months to get your bill paid off, thus granting you the fresh start you need so that you won't have to owe as much.

The best news is that your federal tax lien, or FTL, will be released once your bill is finally paid in full. Anyone can qualify, from wage earners to small business owners. An offer in compromise, or OIC, can be made with the Internal Revenue Service as needed.

If this is the first time you've ever been delinquent on your federal tax payments, then the Fresh Start Initiative program is just for you. Furthermore, the IRS will gladly take into consideration the amount of money you spend for cost of living and other necessary expenses. If you happen to owe in student loans, they will be calculated as well. Plus, if you owe in state and local taxes, those will also be configured when determining whether or not you qualify for the program.

With that being said, owing on taxes isn't as daunting as it may initially sound. The IRS understands that life can often get in the way, and with it, more financial stress. Anyone facing a financial hardship can simply ask their tax accountant for more information on the Fresh Start Initiative program and find out if they qualify.