Does IRS have the power to take my 401k savings, if I own them any money?

Question

I used to work for a company that offered 401k, since I left (about 2 years ago) I have not been putting any money on my plan, since my new company does not offer it. I own some money to IRS and I am afraid that they will get to it. What shoul I do?

Answer 1

Can they?

Yes.

And while you would owe the income tax on the distribution, you would not be subject to the 10% early withdrawal penalty.  (See form 5329, exception code 10.)  

Answer 2

IRS collections probably doesn't know about your 401k, but if they subpoena you to a hearing and start asking questions you have to tell the truth.  It depends on how much you owe.  They probably won't subpoena you if your amount due is small.  These hearings cost money.  Try and arrange to make payments on your tax defiency.  Do not make any promises that you can not fulfill.

Answer 3

IRS does know you have the 401K it has been reported to IRS yearly, therefore, it is best for you to request an installment agreement on the amount you owe IRS, the minimum payment IRS can accept for balances up to $1,499.00 is $25.00.  IRS accepts 60 months to pay back the total amount due.

Answer 4

I agree that if the amount is small, probably worth more to just continue adding past due fees to your outstanding balance...but with that said, yes the IRS can legally attach your 401k, social security, disability and garnishee your wages.

As for them not knowing about it, trust me - they are well aware of that account.  Your former employer reports quite a bit of employee information when they file taxes, benefit administrators must account for money taken from employee paychecks.

Suggestion? As stated by the first post, make payment arrangements and make them on time.  The longer you wait, the bigger that bill is going to get.

Answer 5

The IRS will generally not levy a 401K plan. Even so, take the advice given by others and make payment arrangements to avoid garnishment of other assets and income.  

Answer 6

If you have the right to withdraw the funds, so does IRS.  Normally it does not levy on retirement funds, but can if there is no reasonable alternative.