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Does anyone know if a 401(k) balance could be seized by the IRS to satisfy back taxes?
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Does anyone know if a 401(k) balance could be seized by the IRS to satisfy back taxes?

Could it? Possibly. Would it? Doubtful.

For just about any type of asset, if the taxpayr can get his hands on it, the IRS can take it. Thus, if we were talking about a 401(k) from prior employment or, perhaps, after-tax contributions based on current employment, yes the IRS could take it. If the taxpayer couldn't freely withdraw it, then probably the IRS can't either, for example current pre-tax contributions.

It's doubtful that they would take it, even if they could. Retirement assets are a no-no by procedure and policy, except in really ugly situations.

I am retired 5 years, so things may have changed, but I doubt that the current rules are significantly different.

Phil Marti
retired IRS collection officer
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<<It's doubtful that they would take it, even if they could. Retirement assets are a no-no by procedure and policy, except in really ugly situations.

I am retired 5 years, so things may have changed, but I doubt that the current rules are significantly different.>>

There have been some changes (as luck would have it, I just returned from a two-day seminar on offers in compromise, liens, levies, and seizures).

But, from what we were told, the IRS is going after 401k and IRA accounts when and if it appears that the balance can't be compromised, or worked under an installment agreement, or the taxpayer just doesn't feel like making the payment. As Phil points out, these are "ugly" situations...but we were told that these are a bit more common than they were in the past number of years (when the IRS was terrified to lien or levy much of anything for fear of bad press and yet another Congressional hearing).

And...a trick that we were given in the seminar...one that not too many folks realize or understand: There are times when you WANT the IRS to Levy your 401k or IRA. Why? Because if the IRS takes the 401k or IRA funds to satisfy a debt, the 10% early distribution tax will not apply. On the other hand, if you VOLUNTARILY take the funds out of the IRA or 401k plan to pay the IRS debt, you'll get hit for both taxes AND the 10% early distribution tax.

So...as odd as it seems...there may be times that you'll want to BEG the IRS to levy your 401k or IRA. And, even after the begging, the IRS will still be hesitant.

And that's why a GOOD tax pro is worth his weight in gold. And I'm pretty fat!! :-)

TMF Taxes
Roy
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I just returned from a two-day seminar on offers in compromise, liens, levies, and seizures

Thanks for the update, Roy. Nice to see you back here. I think I can speak for some others when I say we missed you.

Phil
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