Yes, the government can take your IRA in several specific situations, even though federal law shields retirement accounts from most private creditors. The IRS can levy an IRA to collect unpaid federal taxes, a federal court can reach it to satisfy criminal fines or victim restitution, and prosecutors can forfeit it when the money inside is tied to criminal activity. State tax authorities and Medicaid estate recovery programs can also pursue IRA funds in narrower circumstances. The protections that stop ordinary creditors do not stop the government.
The Default Protection, and Why It Doesn’t Help Here
In bankruptcy, traditional and Roth IRA balances are exempt up to $1,711,975 under a federal cap that adjusts every three years (the current figure runs from April 2025 through 2028). Anything above the cap is available to creditors. That shield is the starting point, and every government seizure described below is an exception to it. If you inherited an IRA from someone other than a spouse, you have even less protection: the Supreme Court held in Clark v. Rameker (2014) that inherited IRAs are not “retirement funds” for bankruptcy purposes and are not exempt at all.1Justia. Clark v. Rameker
IRS Levies for Unpaid Federal Taxes
The most common way the government reaches an IRA is through an IRS levy. Under 26 U.S.C. § 6331, the IRS can levy “all property and rights to property” belonging to someone who fails to pay a tax debt within ten days of a notice and demand.2Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint The only property protected is what 26 U.S.C. § 6334 specifically lists: basic clothing, schoolbooks, unemployment benefits, certain military pensions, and similar items. IRAs are not on the list, and § 6334(c) states that nothing is exempt from levy except what the statute names.3Office of the Law Revision Counsel. 26 USC 6334 – Property Exempt From Levy
The IRS does not seize an IRA without warning. You will first receive several balance-due notices, then a Notice CP504 warning that the IRS intends to levy. CP504 alone does not authorize the seizure. The IRS must then issue a formal “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” (Letter L-1058 or LT-11). That final notice must arrive at least 30 days before the levy, delivered in person, left at your home or workplace, or sent by certified mail, and it must explain the levy process, your appeal rights, and alternatives such as installment agreements.2Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint4Internal Revenue Service. Collection Due Process CDP FAQs
Once that 30-day window closes without resolution, the IRS sends Form 668-R (Notice of Levy on Retirement Plans) directly to your IRA custodian, and the custodian releases the funds.5Internal Revenue Service. Internal Revenue Manual 5.11.6 – Notice of Levy in Special Cases The IRS can take the entire balance if that is what the debt requires, and the debt includes years of accumulated penalties and interest, not just the original tax.
How to Stop or Contest an IRS Levy
The 30-day window after the Final Notice is the critical deadline. Within those 30 days, file Form 12153 to request a Collection Due Process (CDP) hearing. A timely CDP request generally halts collection while the hearing is pending.6Taxpayer Advocate Service. Collection Due Process CDP
At the hearing you can challenge whether the tax is actually owed (if you never had an earlier chance to dispute it), propose a payment alternative, or argue that the levy would cause undue hardship. A timely CDP request also preserves your right to petition the U.S. Tax Court if you lose. Miss the 30 days and you lose Tax Court review. You can still request an “Equivalent Hearing” within one year, but the Appeals Office decision at that stage is final.6Taxpayer Advocate Service. Collection Due Process CDP
Two alternatives can prevent a seizure. An installment agreement lets you pay the debt over time rather than surrender the account in one blow. An offer in compromise settles the debt for less than the full amount, filed on Form 656 with a $205 fee (waived for low-income filers) and an initial payment. One warning: submitting an offer does not automatically freeze collection. The IRS can still levy up until an authorized official formally accepts the offer as pending. If a levy notice arrives after you file, call the IRS right away.7Internal Revenue Service. Form 656 Booklet – Offer in Compromise
If the debt came from a joint return and the errors were your spouse’s, you may qualify for innocent spouse relief. You have two years from when the IRS first notifies you of the audit or balance to request it.8Internal Revenue Service. Innocent Spouse Relief
What You Owe in Tax After a Seizure
Losing the account is only part of the damage. When the IRS levies a traditional IRA, the forced withdrawal is still subject to regular income tax, because the money was never taxed going in. The one break Congress wrote in: the 10% early withdrawal penalty does not apply when the IRS levy causes the distribution, regardless of your age. That exception sits in 26 U.S.C. § 72(t)(2)(A)(vii).9Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Criminal forfeiture is treated differently. In 2025, the Sixth Circuit held in United States v. Hubbard that an IRA forfeited as proceeds of criminal activity does not generate income tax for the former account holder. The court reasoned that the defendant received no economic benefit; the government owned the IRA at that point and was simply collecting its own property.10U.S. Court of Appeals for the Sixth Circuit. United States v. Hubbard
Criminal Fines and Victim Restitution
When a federal court orders restitution to crime victims or imposes criminal fines, the collection power reaches retirement accounts. The Mandatory Victims Restitution Act requires courts to order restitution for victims of certain federal offenses regardless of the defendant’s ability to pay.11Office of the Law Revision Counsel. 18 U.S. Code 3663A – Mandatory Restitution to Victims of Certain Crimes
Under 18 U.S.C. § 3613, a restitution order or criminal fine creates a lien on all of the defendant’s property and rights to property “as if the liability were a liability for a tax assessed under the Internal Revenue Code.” The lien runs for 20 years or until the debt is paid.12Office of the Law Revision Counsel. 18 USC 3613 – Civil Remedies for Satisfaction of an Unpaid Fine That language is the key: the government pursues restitution with the same tools the IRS uses for taxes, and bankruptcy’s IRA shield does not block it.
Asset Forfeiture
Forfeiture is not a debt collection. The government argues that the property itself is tainted by crime and should be surrendered. Federal courts have confirmed that IRA accounts can be forfeited when the funds were derived from or used to facilitate crimes.13The Tax Adviser. Forfeiture of IRA Is Not a Taxable Distribution
Criminal forfeiture happens during a prosecution. If you are convicted, the court can order forfeiture of specific property linked to the offense, including financial accounts. In Hubbard, the district court identified the defendant’s homes, cars, and IRA as property purchased with criminal proceeds and ordered the IRS to seize all of it.13The Tax Adviser. Forfeiture of IRA Is Not a Taxable Distribution
Civil forfeiture does not require a conviction, or even criminal charges. The government files an action against the property itself. Under 18 U.S.C. § 983, prosecutors must prove by a preponderance of the evidence that the property is subject to forfeiture, and when the theory is that the property facilitated a crime, they must show a “substantial connection” between the property and the offense.14Office of the Law Revision Counsel. 18 U.S. Code 983 – General Rules for Civil Forfeiture Proceedings Preponderance is a lower bar than the “beyond a reasonable doubt” standard in criminal trials, and that lower threshold is why civil forfeiture draws criticism: the government can take your IRA without ever proving you committed a crime.
State Taxes and Medicaid Estate Recovery
State tax authorities can also pursue IRA funds for unpaid state income taxes. How well your IRA is protected depends on your state’s exemption rules, which vary widely. Some states shield retirement accounts strongly against any creditor; others allow a levy process similar to the federal one.
Federal law also requires every state to operate a Medicaid estate recovery program. When someone received Medicaid-funded long-term care and later dies, the state must try to recover the cost from the estate. No recovery occurs while a surviving spouse, a disabled child, or a child under 21 lives in the home.15HHS ASPE. Medicaid Estate Recovery
Whether an IRA is exposed depends on how your state defines “estate.” States must at minimum recover from probate assets. States may also adopt a broader definition reaching property that passes outside probate, such as accounts with named beneficiaries.15HHS ASPE. Medicaid Estate Recovery An IRA with a named beneficiary normally skips probate, so in narrow-definition states it may be safe and in broad-definition states it may not. The answer depends on where you live.
Debts to Other Federal Agencies
If you default on a loan from an agency like the Small Business Administration or owe a Social Security overpayment, that agency can pursue your IRA, but not with the IRS’s streamlined levy. The agency must first sue and obtain a court judgment before enforcing against the account.
One common point of confusion deserves a direct answer: the Treasury Offset Program (TOP) does not reach into a private IRA. TOP intercepts federal payments already flowing to you, including tax refunds, federal salary, and certain federal retirement payments such as OPM annuity checks, and redirects them to pay delinquent debts.16Bureau of the Fiscal Service. Frequently Asked Questions for Debtors in the Treasury Offset Program It operates on money the government is already sending, not on balances held at your financial institution.