Today TaxMama hears from Michael in Phoenix, AZ who wants to know, “Can the IRS can take your IRA account for back taxes now or when you cash in at retirement?”
Yes, they may certainly take it now.
But only if you owe them money and ignore them or refuse to make arrangements to pay IRS.
In fact, not only are IRAs not protected from IRS levy, when IRS does levy the IRA account, the amount they grab is taxable income to you.
Former U.S. Rep. Houghton of N.Y., felt this levy action posed such a hardship that in 2002 he introduced the Taxpayer Protection And IRS Accountability Act Of 2002 (House Report 107-394) to extend the time that taxpayers have to respond to levy notices. The bill, however, failed 205-219.
The good news about IRS levies is, that while the draw is taxable income, there are no early withdrawal penalties. I’ll bet that just makes your day!
Bear in mind, though, that before IRS reaches the point of grabbing your IRA, they will send notices to your employers, to grab your wages; to your major clients (who issue 1099s) to grab your accounts receivable, and to your banks (who issue 1099s) to grab the funds in your account, right before your rent check or mortgage check clears. Not only is it inconvenient, it’s downright embarrassing.
So, just because you don’t think you have visible assets, don’t just go blithely along, ignoring tax notices, and not even opening them, thinking you’ve got nothing for IRS to take. They have a long reach – and so does your state.
And remember, you’ll find answers to questions about IRS Collections and all kinds of tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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