The IRS can legally seize a variety of types of retirement money, including IRA’s, 401k plans, and self-employed plans such as SEP-IRAs and Keogh plans.
The IRS can seize your retirement money if you have access to it. Meaning, if you knew that you owed taxes while putting money into a retirement account, they will deem that conduct as flagrant. Any flagrant conduct will open the doors up for the IRS to seize the owed taxes from your retirement account(s). Any type of flagrant conduct, including tax evasion, fraud, or making additional contributions while taxes are owed will legally give the IRS rights to tax your retirement money.
The IRS cannot seize your retirement money if, you can prove that no flagrant conduct took place or that you depend on your retirement money. The IRS Manual states in 18.104.22.168 that retirement money cannot be levied if the above situations are relevant to your situation.
Ways to protect your Retirement Money From IRS Seizure
Most clients we see are forced to live off retirement income because of losing a job or being laid off. When the 10% early distribution penalty hit, they don’t have a way to pay the owed taxes. So, if your sole source of income is taking distributions from money in your retirement accounts, the Internal Revenue Service will want to liquidate your retirement accounts to pay taxes.
In order to protect your retirement account from IRS seizure is to, first, know that the Internal Revenue Service can only access your money if you can too. If you can’t access your retirement account, then neither can they.
Many people are denied access to their retirement money until they die, retire, become disabled, or don’t have a job anymore. As long as you are employed, the IRS can’t touch your retirement account. Although, in this case, they make look elsewhere, such as your wages or personal assets.
The Internal Revenue Service will back off if you can establish that they have zero rights to your retirement account. Although, there have been cases of aggressive Internal Revenue officers that will levy assets, wages and non retirement assets.
However, the Internal Revenue Service is usually hesitant to levy retirement accounts. Although, it’s always better to have a professional tax person who will assist you in cases like the above.