Do you have money sitting in an employer-provided 401(k) account? Do you owe back taxes to the Internal Revenue Service? If so, your retirement funds may be up for grabs if the IRS imposes a tax lien on your account. In a few cases, the IRS has the authority to seize your 401(k), so it's important to find out which circumstances fall under this provision if you want to keep your funds safe.

Does the IRS Have a Right to Take Your 401(k)?

According to federal law, the IRS can seize all of the assets a taxpayer owns when the agency finds it necessary to do so. These assets include bank accounts, cash, property and valuables. In some cases, the IRS may also have the authority to seize retirement accounts that a taxpayer owns, including IRAs and 401(k) funds.

However, these rights are restricted if the taxpayer does not have the rights to the money. For example, if the company owns the fund and you do not have access to it, then the IRS cannot seize it either. At many companies, employees only have access to their 401(k) funds when they either retire or leave their jobs.

When Does the IRS Seize a 401(k)?

While the IRS has the right to seize a taxpayer-owned retirement account, the agency very rarely exercises this option. In general, this is only done when an individual has been subjected to a tax lien. A tax lien is only imposed with a person has not paid a back tax debt in a long time. Even then, the IRS generally only seizes a 401(k) if the individual has committed a serious form of misconduct such as fraud or tax evasion.

If the 401(k) becomes subject to a tax levy, the taxpayer may ask the company to liquidate the fund so that the assets become unavailable for seizure. In some cases, however, you might find it better to allow the IRS to seize the fund, especially if it is large enough to pay a significant amount of the debt.

If you owe back taxes to the IRS and you have funds in a 401(k) account, you may be open to IRS 401(k) seizure. The best way to protect your retirement funds from the IRS is to avoid a tax lien. If you have a back tax debt, contact the IRS to work out an installment plan as soon as possible. As long as you keep your payments current, your 401(k) funds are likely safe from IRS seizure.