Can the IRS take your 401K if you have back taxes?
My mother currently owes several thousand dollars in back taxes from an old business owned. She now works for a automotive dealership and is being paid a regular paycheck. She has also been contributing to a 401K and has accrued about 00. We are worried that if the amount gets too high the IRS will red flag it and garnish it. Is this possible for them to do?
We are thinking of withdrawing several thousand dollars of it before anything is garnished. Will the IRS be more apt to flag the account if she removes anything from it? Just trying to figure out the best way of handling the situation.
I am in th the position to take care of her tax debt a year from now, however for now I want to ensure her money stays her money. Any thoughts? Thank you
SHE IS OVER 60, so they told her she would be able to make withdraws from her 401K while still employed, is this correct?
5 Responses
Max Hoopla
14 Jun 2010
Pat
14 Jun 2010
They can take your paycheck, your savings, your house, your car, and anything else they want.
Wayne Z
14 Jun 2010
They won’t levy the account if she has made payment arrangements. If she is ignoring her obligation, it is fair game.
She won’t be able to take the money out while she still works for the sponsoring employer.
On the bright side, if the IRS does levy the account, the 10% penalty is waved. If she does manage to take the money out (and she is not 59.5 years old), the amount taken out will be subject to taxes and a 10% penalty.
She should probably stop her 401k contributions and use the extra money in her paycheck to pay the IRS.
SmartA$$
14 Jun 2010
The IRS can take EVERYTHING.
They CAN, but they WON’T, if she would simply set up a payment plan and begin the process of paying what she owes.
Having money in a 401k isn’t going to do any good if you can’t actually get the money without the IRS taking it, so she might as well stop her contributions for now and put the extra money toward her tax debt.
In all likelihood, if she ignores the IRS long enough, they won’t touch her 401k balance, but they will garnish a portion of her paychecks until the debt is repaid, which will probably mean she can’t afford to continue to contribute to the 401k, so it will have the same effect as if she voluntarily stopped her contributions to pay her taxes.
tro
14 Jun 2010
IRS will not attach her 401K
if she is 59 1/2 she can withdraw her 401 K but however much she takes will merely add to her gross income and result in more tax for her when she takes distribution
you worry needlessly, leave the 401 K alone, she can continue to work and pay her back taxes as she can and when the time comes she really needs the 401 K she can take distribution at that time
It can but generally won’t and your case sounds like a won’t. A levy on a retirement account requires a higher level of approval than a first level employee.