Can the IRS Take My 401(k) for Back Taxes?

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401(k) piggy bank with stacks of coins
If you’ve worked your entire life to save money for your retirement, receiving a notice of delinquent federal taxes from the IRS can pose a serious issue. It may feel unfair and worrisome for both yourself and your family. You may wonder how it is possible for the IRS to take such action in the first place.

Can the IRS levy my 401(k) for back taxes?

The short answer is yes. Even though retirement accounts are often sheltered from creditors under federal and state law, this protection ceases to exist when the creditor is the Internal Revenue Service.

The IRS can and will garnish your assets to ensure payment on your tax debts. They will initially attempt to seize a variety of different assets, but If no other options exist they will levy your 401k for payment.

If you receive an IRS notice of intent to levy, know that many of your important assets are protected

Right now you might be wondering what types of assets the IRS can garnish to collect on your debt. To determine this we must first understand what assets the Internal Revenue Code protects from IRS collection activity. If an asset is not protected, a determination is made as to whether or not you own enough equity for the IRS to recover it. There are six types of protected property listed in Section 6334.

6 Important Assets the IRS Can’t Touch

  • Furniture and household goods up to $7,720 in value;
  • Tools necessary for the trade, business, or profession up to $3,520 in value;
  • Clothing and school books that are necessary for the taxpayer’s family;
  • Undelivered mail;
  • Wages necessary to pay court-ordered child support; and
  • Personal residences if the balance owed to the IRS is $5,000 or less.

To satisfy outstanding federal tax obligations, the IRS has extensive power to seize any type of retirement assets. This is true whether they are employer or self-sponsored. These include qualified pension plans, retirement accounts, and Simplified Employee Pensions. This is true whether their retirement account is employer or self-sponsored.

Retirement benefits the IRS can levy & the needs-based exceptions

The IRS can levy against Social Security, military, civil service, and railroad retirement benefits. Aside from the exceptions listed above, 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. There are previous few protections or exemptions to the general rules above.

Retirement benefits given on a needs basis are one of these exemptions. Therefore, they are off-limits to an IRS levy. For example, if you are elderly and receive Supplemental Security Income through the Social Security Admin, the IRS cannot levy against those SSI payments.

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)

How to stop the IRS from taking your 401(k)

An IRS levy is an extreme step, but it comes after a number of notices to halt the process. If you’ve been notified of delinquent federal taxes, arrange an installment agreement or pay the outstanding amount in full to prevent a levy against your account.

Before taking any actions with the IRS, call a licensed tax professional right away to arrange for your financial safety. They will make sure that the retirement you’ve planned for is still waiting for you in the future.

A trusted and experienced tax attorney can be difficult to find. For information about how to find a good tax attorney check out our post What you Need to Know When Seeking a Tax Lawyer & Reliable Tax Resolution Firm.

If the IRS has threatened to take your 401(k), Boxelder Consulting is always here to help. Our attorneys’ highest priority is to protect your best interests. Contact us to learn more about hiring one of our experienced licensed professionals.

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About the Author

A company founder standing by Colorado's Front Range

Tom Conradt

Co-Founder, IRS Collections Defense Attorney

Tom Conradt is the co-founder of Boxelder Consulting & Tax Relief, and has been practicing IRS Collections defense law for the past ten years. Graduating from the University of North Carolina at Chapel Hill, Tom is the lead IRS Collections Defense Attorney and heads the tax resolution department. Tom’s favorite part about working at Boxelder Consulting is hearing about the relief that clients experience after they sign up and start seeing immediate results on their case. Tom enjoys all the outdoor activities Colorado has to offer, including skiing, hiking and climbing. He is also looking forward to the return of indoor pickup basketball.

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