Creditors can’t meddle with your retirement accounts. This account category is seen as a saving and therefore protected. However, there is one creditor that many of us overlook. The IRS is the most powerful creditor of all and they have the legal power to seize retirement accounts if necessary. These accounts incorporate Keogh plans, 401K plans, self-employed plans and IRAs. The Internal Revenue Code does not forbid seizure of such assets.
It is your responsibility to ensure your retirement accounts are kept safe from IRS seizure. The best way to prevent seizure is to know the IRS can acquire what you acquire – no more and no less. If you make it impossible for you to touch the retirement cash, the IRS won’t either. It is common to gain access to the funds at the severance of employment service, death / disability and retirement. While you have employment you may not use that money and the IRS has no power to seize it. The Internal Revenue Manual 5.11.6.2 oversees the IRS seizure of retirement accounts.
There are important considerations should retirement money be available to you and within reach of the IRS. Firstly, were you responsible for flagrant behavior resulting in legal responsibility? Examples of flagrant behavior would be contributing to the account as unpaid taxes were expected, fraud and evasion of tax. Secondly, do you rely on cash from your retirement account now or in the future? The Internal Revenue Manual 5.11.6.2 maintains a retirement account may not be levied if there is no evidence of flagrant conduct or reliance on retirement cash.
There is no doubt that correct management, negotiations and awareness is necessary in defending your retirement cash from the IRS. If there are no rights to the retirement account even hostile IRS Revenue Officers will relent. Should you refuse to withdraw the cash the IRS will attempt to place a levy on salary. Even though the IRS has the power to seize they prefer not to.
