Can the Government Take Your IRA or 401(k)?

Can the Government Take Your IRA or 401(k)?

One of the key concerns most people have when planning for retirement is making sure that their money is safe. Between stock market crashes, Bernie Madoff-style Ponzi schemes, and hackers targeting financial accounts through phishing, there are numerous threats out there that need to be defended against. But while you can protect yourself against most threats when you invest in an IRA or 401(k), you can’t protect yourself against the government.

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The government will always take its pound of flesh, and if it determines that you need to pay more taxes, you’re going to pay them some way or another. Whether that’s voluntarily through your annual tax return or forced through levies and garnishments on your paycheck, the IRS will get its money, and it’s willing to take the time and effort to do so.

While it’s not highly likely that the IRS will attempt to seize your 401(k) or IRA retirement account, the agency still can do that. It has a long history of seizing financial accounts from thousands of people. Financial institutions and courts will generally go along with an IRS order unless you, the taxpayer, can prove that the IRS was wrong.

Tax disputes also go through the tax court system, which is distinct from the rest of the federal court system, with different rules and regulations. Very often you are forced to try to prove your innocence, with the IRS presumed to have been correct. That could set you up for a very long and costly process to get your money back.

Given that history, it’s understandable that many people want to protect their assets from potential seizure, even inadvertent seizure. A “fat finger” at the IRS typing in the wrong account number could result in your bank account, 401(k) account, or other financial institution account being shut down. So how do you protect yourself?

Many investors have flocked to the safety of gold IRAs, a self-directed IRA investment vehicle in which the accountholder, not a financial institution, is in charge of investments. By moving funds from a 401(k) account into a gold IRA through a gold IRA rollover, investors can reduce the likelihood that their retirement assets will be seized by the government. And with all the other benefits that a gold IRA can offer, such as protecting assets during times of financial turmoil, moving funds into a gold IRA is a no-brainer.

How Safe Is Your IRA or 401(k)?

Most people think their retirement accounts are protected, but for many Americans they’re just as much at risk as any other financial asset. While the federal government can take just about anything it wants, you can’t forget that your retirement accounts may be at risk of seizure by your state tax authority too. In some states 401(k) plans are safe from state authorities, while IRA accounts are not. You’ll want to look up your state laws to see just what they say.

In general, federal law protects ERISA (Employee Retirement Income Security Act) plans from many state laws. Examples of ERISA plans include 401(k) accounts, group health and life insurance plans, health savings accounts (HSAs), etc. Essentially most plans sponsored by employers are subject to ERISA protections.

Accounts that you start on your own accord, on the other hand, are not protected by ERISA. Those include most IRA accounts and Roth IRA accounts. But those ERISA protections really only protect your accounts in the event of civil procedures such as lawsuits, bankruptcy proceedings, etc. When it come to the federal government taking action against you, all bets are off.

Most importantly, the government doesn’t have to be right to start taking action against you. A tax return getting lost in the mail, a handwritten return being read wrong, or some other little triviality could be all it takes to get the wheels of government turning and put your retirement assets at risk.

How to Protect Your Retirement

You may have read about schemes to protect your retirement assets by moving your funds into an offshore IRA LLC. According to those who promote those schemes, that puts your money out of the hands of potential creditors, including the federal government.

But what they fail to mention is that your place of incorporation makes a big difference in what the IRS can reach. Due to tax treaties with numerous countries, the IRS can still seize funds you hold in foreign countries. And even if you set up an LLC in a country that doesn’t have an agreement with the US, there’s nothing keeping the US from setting up a new agreement with that country.

Furthermore, if you’re moving funds offshore with the specific purpose of hiding them from the IRS, you can expect the full weight of the federal government to come down on you. Unless you plan to move out of the country and never come back, you can expect to come under pretty intense scrutiny.

That’s why it makes far more sense to protect your money through time-tested and proven assets such as gold. With a gold IRA you can roll over existing retirement assets from a 401(k) to gold and retain those same ERISA protections. That rollover can take place tax-free and, just like a traditional IRA, taxation on your gains is deferred until you decide to take a distribution.

When you have to take a distribution or are required to take a distribution, you can choose to take the distribution in cash or in physical gold. That allows you to retain the benefits of gold ownership even after your tax-deferred investment is done. And because your investment is in physical gold, not in paper assets such as stocks and bonds through a traditional IRA or 401(k), it isn’t nearly as easy for the government to seize and freeze your gold assets as it is with paper investments.

The first rule of keeping your retirement assets out of the IRS’ reach is not to get on the IRS’ bad side. Paying your taxes on time, dotting all your “i”s and crossing all your “t”s is always a good idea. But sometimes circumstances don’t work in your favor. In those cases you’ll need all the help you can to protect your assets from the government’s grabby hands.

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Investing in gold can be just the thing to keep your assets safe. Aside from the tax benefits that help you during normal times, the ability to keep your assets protected during abnormal times can be a lifesaver. Contact the experts at Goldco today to see how a gold IRA rollover can protect you from government 401(k) confiscation.