If you owe back taxes, you may be asking one of the most anxiety-inducing questions in tax resolution:
“Can the IRS take my 401(k)?”
The short answer is yes, but only under specific circumstances.
Retirement accounts receive some protection from creditors, but the IRS operates under federal super-creditor powers, meaning it can override many state and ERISA protections when collecting tax debt.
Understanding when and how the IRS can levy your 401(k) could be the difference between protecting your retirement and losing a significant portion of it.
How IRS Levies Work
Before diving into retirement accounts specifically, it’s important to understand the levy process.
An IRS levy is the legal seizure of property to satisfy unpaid tax debt, authorized under Internal Revenue Code § 6331.
The IRS can levy:
- Bank accounts
- Wages
- Social Security
- Investment accounts
- Business receivables
- Retirement funds (including 401(k)s)
However, retirement levies are generally considered a last resort enforcement action.
Are 401(k)s Protected From IRS Levies?
The Key Rule: ERISA Protection Does Not Stop the IRS
Most 401(k) plans are protected under the Employee Retirement Income Security Act (ERISA) from private creditors, lawsuits, and bankruptcy claims.
But federal tax law overrides these protections.
Under IRC levy authority, the IRS can reach:
- Employer-sponsored 401(k)s
- Profit-sharing plans
- Certain pensions
- Deferred compensation plans
This is because federal tax liens attach to “all property and rights to property” belonging to the taxpayer.
Can the IRS Take Money From an Active 401(k)?
It depends on accessibility.
Scenario 1: In-Service Withdrawals Allowed
If your plan allows withdrawals while you’re employed, the IRS can levy those accessible funds.
Scenario 2: No Withdrawal Access
If funds are inaccessible (for example, you’re under retirement age and withdrawals are prohibited), the IRS may be limited—at least temporarily.
However, they can still:
- File a tax lien
- Wait until funds become distributable
- Levy once accessible
Situations Where the IRS Is Less Likely to Levy Retirement Accounts
While legally permitted, retirement levies are not always pursued.
The IRS typically evaluates:
- Age of the taxpayer
- Health status
- Income sources
- Hardship level
- Availability of other assets
If levying retirement funds would create economic hardship, enforcement may be limited.
How to Stop the IRS From Levying Your 401(k)
The good news: retirement levies are largely preventable through proactive measures.
1. Installment Agreement
Entering a payment plan usually stops levy enforcement.
2. Offer in Compromise (OIC)
Settling the debt can eliminate levy risk entirely.
3. Currently Not Collectible (CNC)
If paying would prevent basic living expenses, the IRS may suspend collections.
4. CDP Hearing
Filing within 30 days of a Final Levy Notice legally halts levy action.
5. Bankruptcy (Limited Cases)
Income tax debts may be dischargeable under strict criteria, which can protect retirement funds.
Can the IRS Levy IRAs Too?
Yes.
Traditional and Roth IRAs are generally easier to levy than employer plans because they lack ERISA protections.
The IRS can seize IRA funds if withdrawal rights exist.
Citations & Authority
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