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Tax liens and wage garnishments for unpaid taxes can be confusing and unsettling. And it’s even more unsettling to think that the IRS can levy your 401(k). The IRS’s ability to access these funds to settle tax debts is concerning for individuals and businesses alike.
If you’re receiving notices from the IRS, it’s important to respond quickly, before the IRS takes action. But before your respond, we recommend getting advice from either a certified public accountant, or tax lawyer.
Can the IRS Seize My 401(k) Plan for If I Owe Back Taxes?
The short answer is yes. The IRS can garnish your 401(k), or other retirement benefits for back taxes. However, more often than not it will be a last resort.
If you receive a notice of intent to levy from the IRS, don’t panic. Your first step is to understand what this means for your assets.
What assets does the IRS protect from a levy?
The IRS safeguards specific assets against levies, as outlined under Section 6334 of the Internal Revenue Code. Among these are personal belongings and income sources, including:
- Household goods and furniture up to a value of $7,720;
- Professional tools and equipment valued up to $3,520;
- Necessary clothing and educational materials for the taxpayer’s family;
- Undelivered mail;
- Income required for court-ordered child support;
- Primary residences under a $5,000 tax debt threshold.
Despite these protections, retirement assets remain vulnerable to IRS levies if you face significant taxes owed. Potential assets at risk include Social Security as well as military or service pensions. Keep in mind that needs-based assets are the exception.
Retirement benefits the IRS can levy & the needs-based exceptions
The IRS has the authority to levy against any or your retirement plans. This includes your social Security, military accounts, civil service accounts, and railroad retirement accounts. The reality of the matter is that there are few assets you can protect from an IRS levy.
When you owe the government money, the IRS will do just about anything to collect your debt. But, there are exemptions to the general rules above.
One example of these exemptions is Retirement benefits given on a needs basis. These are off-limits to an IRS levy, as are the other needs-based benefits listed below. If you’re elderly and receive Supplemental Security Income from Social Security, the IRS cannot take that money from you.
Needs-Based Benefits include the following:
- Supplemental Security Income (SSI)
- Medicaid
- Supplemental Nutrition Assistance Program (SNAP)
- Temporary Assistance for Needy Families (TANF)
- Subsidized Housing
- Children’s Health Insurance Program (CHIP)
Preventing an IRS Levy on Your 401(k)
Facing a potential IRS levy requires immediate action. If you fail to pay on time, you can set up a payment plan or pay the tax debt in full. Your first step should be to talk to tax experts first to protect your retirement savings.
At Boxelder Consulting, we are more than a tax resolution firm. We specialize in helping small businesses and individuals navigate any tax situation and protect your financial assets. Your financial well-being is our top concern.
How to Find a Good Tax Attorney
Before you Google “tax attorney Denver” or “tax lawyer Denver” consider our team at Boxelder Consulting. If you’re worried about any IRS collection activity, we are here to help! Our team of dedicated professionals are ready to assist with any potential concerns. Contact us now so we can secure your financial future against the complexities of tax laws and IRS levies.
