Quick overview
An IRS levy is a legal seizure of property to satisfy a tax debt. Not all retirement assets are treated the same: employer-sponsored plans (401(k), 403(b), defined‑benefit pensions) and individual accounts (IRAs, Roth IRAs) have different protections and exposure. The IRS often cannot immediately take plan assets while they remain inside certain employer plans, but it can seize distributions and — depending on circumstances — pursue IRAs and other funds. Acting quickly when you receive a notice and using the IRS’s appeal and collection options are the best ways to protect retirement savings. (See the IRS overview on levies: https://www.irs.gov/collections/levies.)
This article explains how levies work, which retirement accounts are typically protected, practical steps to take after a levy notice, negotiation options (installment agreements, offers in compromise, hardship status), and common mistakes to avoid. For related practical guidance, see FinHelp’s articles: How to Request a Collection Appeal to Stop an IRS Levy, IRS Levy Protection, and Challenging an IRS Levy: Steps to Stop a Bank Seizure.
How IRS levies generally work
- The IRS will send multiple notices before levying. Common notices include a final notice of intent to levy and notice of your right to a hearing (for example, CP90, LT11, or CP504 depending on collection stage). You typically have a short window (often 30 days) to request a Collection Due Process (CDP) hearing or ask for an equivalent appeal. See the IRS page on collection due process rights for exact timing and options.
- If you ignore notices, the IRS may issue an administrative levy to a third party (bank, employer, plan custodian) to seize funds, or the IRS may use other collection tools, including federal tax liens.
- Certain property is exempt or given special treatment under law; retirement accounts are among those where the treatment depends on account type and the timing of funds (in‑plan vs. distributed).
Which retirement accounts are most often protected — and which are vulnerable
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Employer-sponsored plans (401(k), 403(b), ERISA-governed pension plans): While funds are held inside a qualified employer plan, the IRS generally has limited ability to seize plan assets directly through an administrative levy. However, the IRS can and does levy periodic payments or distributions paid to you (for example, pension checks). Also, court judgments or other legal processes may produce different results. Employer plan rules and plan administrators’ policies also affect what happens when the IRS requests funds.
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Individual Retirement Accounts (IRAs and Roth IRAs): IRAs can be subject to IRS levies. In practice, an IRS levy can be served on an IRA custodian to surrender funds in the account. Roth IRA contributions and earnings are treated by tax rules for distribution purposes, but that does not guarantee immunity from levy actions. Because IRA protection is more limited than some employer plans, IRAs are often more vulnerable.
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Rollovers and distributions: Once money is removed from a protected plan (for example, you roll a 401(k) into an IRA or take a distribution), protections can change immediately. Converting plan assets to an IRA can shift the legal exposure.
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State law exemptions: Some states provide extra protections for retirement accounts in state-level collections or bankruptcy; federal tax levies are governed by federal law, but the interplay with state exemptions (for bankruptcy or non-federal creditors) is complex. Always check state law and consult a professional.
(Authoritative source: IRS guidance on levies and exempt property; see IRS.gov.)
Immediate steps to take if you receive a levy notice
- Read the notice carefully and note deadlines. The notice will tell you whether it is a “Notice of Intent to Levy” and the date by which you must request an appeal or hearing.
- Do not withdraw retirement funds to “hide” them. Withdrawals can create taxable events, penalties, and may remove protections — making the funds easier for the IRS to reach.
- Contact the IRS or your assigned Revenue Officer right away. Explain your situation, and ask about options such as an installment agreement, Offer in Compromise, or temporary suspension for financial hardship.
- Request a Collection Due Process (CDP) hearing or a Collection Appeal if you qualify and the notice allows it. Filing for a CDP within the stated deadline preserves certain rights and can delay levies.
- Contact your plan administrator or IRA custodian only after consulting a tax professional, unless the IRS has already served a levy. If you receive a levy served on your plan custodian, forward it to your attorney or tax advisor immediately.
Negotiation and protective options
- Installment Agreement: If you can repay over time, the IRS often accepts monthly installment plans. That can prevent a levy while payments are current.
- Offer in Compromise (OIC): If you qualify (usually when collection would cause financial hardship or you cannot pay the full amount), an OIC may settle the debt for less than the total owed. OICs have strict eligibility and documentation rules.
- Currently Not Collectible (CNC) status: If you can prove financial hardship that prevents basic living expenses, the IRS may temporarily suspend collection activity, including levies, although penalties and interest continue to accrue.
- Collection Due Process hearing (CDP) or Equivalent Hearing: Use this to appeal the levy before it’s final and to raise collection alternatives.
- Hardship release/suspension: If a levy would create an immediate economic hardship, you can request a temporary release. The IRS has procedures to evaluate hardship claims.
All these options require documentation (proof of income, expenses, bank statements) and often the help of a CPA, enrolled agent, or tax attorney to present the case effectively.
Practical examples (lessons from cases)
- Example 1 — Employer plan preserved: A client who owed back taxes kept their 401(k) intact because the assets remained inside the employer-sponsored plan; the IRS could not force a plan transfer while the funds stayed in-plan, and we negotiated an installment agreement to resolve the debt.
- Example 2 — IRA at risk after distribution: Another client rolled a protected 401(k) into an IRA to access funds, then received a levy — the IRA rollover removed some protections and made the funds easier for the IRS to levy. Lesson: avoid distributions and consult counsel before moving plan money.
Common mistakes to avoid
- Withdrawing or moving retirement funds without professional advice. Distributions can be taxed and can change legal protections.
- Missing the appeal deadline. Failing to request a CDP hearing or other timely appeal removes options to stop a levy.
- Ignoring notices and letting the IRS take enforcement action. Proactive contact almost always yields more options.
How to document and prepare for negotiations
- Gather recent tax notices, pay stubs, bank statements, account statements for retirement plans and IRAs, and a basic budget of necessary living expenses.
- Prepare Form 433‑A (Collection Information Statement for Wage Earners and Self‑Employed) or Form 433‑F for businesses/individuals if negotiating an installment agreement or CNC status. (See IRS instructions on collection forms for the most current version.)
- Work with a qualified tax professional (CPA, enrolled agent, or tax attorney) who has experience with IRS collections. They can request hearings on your behalf and structure offers to minimize risk to retirement accounts.
When to get legal help
If the levy involves large retirement balances, complex plan rules, or if you were served a levy on a plan custodian, consult a tax attorney or experienced enrolled agent. Legal counsel is especially important if the IRS seeks to levy an entire plan or if state and federal law intersect (for example, bankruptcy filings or domestic relations orders).
Resources and authoritative references
- IRS levies and collection information: https://www.irs.gov/collections/levies (overview and procedural guidance).
- Consumer Financial Protection Bureau: resources on debt collection and protecting assets (https://consumerfinance.gov/).
- FinHelp related articles: How to Request a Collection Appeal to Stop an IRS Levy, IRS Levy Protection, Challenging an IRS Levy: Steps to Stop a Bank Seizure.
Quick checklist: Protecting retirement accounts from levy
- Read any IRS notice immediately and note deadlines.
- Do not withdraw or roll over funds without professional advice.
- Request a CDP or collection appeal within the notice deadline.
- Call the IRS to propose an installment agreement or ask about hardship suspension.
- Consult a tax pro or attorney experienced in IRS collections and retirement plans.
- Keep copies of all notices, correspondence, and financial documents.
Final notes and disclaimer
In my work advising taxpayers facing collection actions, clients who take immediate, documented steps and use the IRS’s appeal tools most often preserve retirement savings or reduce the amount taken. This article provides general information only and is not legal, tax, or financial advice. For guidance tailored to your situation, consult a qualified tax professional or attorney. Authoritative IRS guidance should be checked for updates at IRS.gov before acting.
