Can the IRS File a Lien Against My Retirement Accounts?

The Internal Revenue Service may or may not have the ability to place a lien on your retirement accounts. The IRS has wide-ranging power, but its ability to use that power to place liens or seize assets is controlled by regulation, specifically U.S. Code Section 6334, Property Exempt from Levy. Some retirement accounts and pensions are protected, but IRA and 401(k) accounts are not, allowing IRS to file liens against them.

U.S. Code Lien Restrictions

Paragraph (a)(6) of section 6334 of the U.S. Code identifies retirement accounts exempt from IRS levy. If you have an account provided by the Railroad Retirement Act, are receiving payments through the Railroad Unemployment Insurance Act or have a pension with the Army, Navy, Air Force or Coast Guard and you have been awarded with the Medal of Honor, the IRS cannot place a lien on your retirement account.

IRAs

If you own one or more IRAs in your name and owe the IRS back taxes, your account can be levied; however, the IRS gives you multiple opportunities to make arrangements to pay your overdue tax bill before it exercises its lien rights. While the IRS, unlike other creditors, has the legal power to place a lien on your IRA, it usually only does so after all other collection attempts fail.

401(k) Accounts

401(k) retirement accounts are legally different from IRAs and may pose more challenges to the IRS in filing liens. These employer-sponsored retirement plans are covered by the Employee Retirement Income Security Act. Plans meeting IRS qualification guidelines legally belong to your employer, not you. Should your 401(k) plan contain language that prohibits plan trustees from transferring any benefits to a third party, your plan administrators can refuse to comply with an IRS lien. You seldom have a guarantee, however, that plan trustees will dishonor an IRS levy.

Other Retirement Accounts

Other than the retirement accounts noted as exempt per the U.S. Code, typical pension accounts and insurance annuity contracts can be levied by the IRS. Much like 401(k) plans, even those additional retirement accounts that are considered qualified ERISA plans may receive a lien from the IRS for unpaid taxes despite their immunity from other creditors. In most cases, the IRS will not or cannot file a lien against your entire account balance. The IRS lien will usually only equal the amount of taxes you owe.

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