Yes, the government can take your IRA in several situations, even though federal law shields retirement accounts from most ordinary creditors. The IRS can levy an IRA to collect unpaid federal taxes, a federal court can order it seized to pay criminal fines or restitution, prosecutors can forfeit it as proceeds of a crime, and some states can reach it for unpaid state taxes or Medicaid recovery. The protections you may have heard about, mainly the bankruptcy exemption, do not stop the government when it is acting to collect its own debts or seize tainted property.
IRS Levies for Unpaid Federal Taxes
The most common way the government reaches an IRA is an IRS levy for unpaid taxes. 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 for payment.1Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint The only property shielded from a levy is the narrow list in 26 U.S.C. § 6334, which covers items like basic clothing, schoolbooks, unemployment benefits, and certain military pensions. IRAs are not on that list, and § 6334(c) states that no property is exempt from levy except what the statute specifically names.2Office of the Law Revision Counsel. 26 USC 6334 – Property Exempt From Levy
The IRS does not seize an IRA without warning. You will receive several balance-due notices, then a Notice CP504 warning that the IRS intends to levy. CP504 alone does not authorize seizing an IRA. 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) at least 30 days before the levy, delivered in person, left at your home or workplace, or sent by certified mail.3Internal Revenue Service. Collection Due Process CDP FAQs Once that 30-day window passes 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.4Internal 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 it takes to cover the tax, penalties, and interest. Years of accumulated penalties and interest can dwarf the original tax bill, so the amount ultimately levied is often much larger than the debt people remember owing.
How to Contest an IRS Levy on Your IRA
The 30-day window after the Final Notice is the deadline that matters. Within those 30 days, you can request a Collection Due Process (CDP) hearing by filing Form 12153. A timely CDP request generally stops collection activity until the hearing concludes.5Taxpayer Advocate Service. Collection Due Process CDP
At the hearing, you can challenge whether the tax is actually owed (if you have not had a prior chance to dispute it), propose alternatives to seizure, 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 disagree with the outcome. 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.5Taxpayer Advocate Service. Collection Due Process CDP
An installment agreement lets you pay over time instead of surrendering your IRA in a lump sum. An offer in compromise settles the debt for less than the full amount, though the IRS typically rejects offers when it believes you can pay in full through installments or by liquidating assets. One trap worth knowing: the IRS can still levy your assets until an authorized official formally accepts your offer as pending. Mailing in the paperwork does not automatically stop collection.6Internal Revenue Service. Form 656 Booklet – Offer in Compromise
If the tax debt comes from errors on a joint return that were your spouse’s, innocent spouse relief may apply. You must show that you filed jointly, your spouse understated taxes, and you had no knowledge of the errors. The request must be made within two years of the IRS first notifying you of the audit or balance due.7Internal Revenue Service. Innocent Spouse Relief
The Tax Bill After a Government Seizure
Losing an IRA to the government usually triggers its own tax consequences. When the IRS levies a traditional IRA, the distribution is subject to regular income tax because the money was never taxed on the way in. You could owe thousands more in tax on a withdrawal you never chose to make.
The one break: Congress carved out an exception to the 10% early withdrawal penalty for distributions caused by an IRS levy. Under 26 U.S.C. § 72(t)(2)(A)(vii), the additional 10% tax does not apply when the IRS forces the distribution, regardless of your age.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Criminal forfeiture is treated differently. In 2025, the Sixth Circuit ruled in United States v. Hubbard that when a court orders an IRA forfeited as proceeds of criminal activity, the account holder does not owe income tax on the seized funds. The court reasoned the defendant obtained no economic benefit: the government already owned the IRA and simply collected its own property, so the forfeiture was not a “distribution” to the taxpayer.9U.S. Court of Appeals for the Sixth Circuit. United States v. Hubbard
Federal Criminal Fines and Restitution
When a federal court sentences someone to pay criminal fines or restitution to crime victims, the government’s collection power reaches into 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.10Office of the Law Revision Counsel. 18 U.S. Code 3663A – Mandatory Restitution to Victims of Certain Crimes
The enforcement provision is what makes these orders so powerful. 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.” That lien lasts 20 years or until the debt is satisfied.11Office of the Law Revision Counsel. 18 USC 3613 – Civil Remedies for Satisfaction of an Unpaid Fine In practice, the government can pursue your IRA to satisfy a restitution order using the same tools the IRS uses to collect unpaid tax. Bankruptcy protection does not block enforcement of a federal restitution order.
Civil and Criminal Asset Forfeiture
Forfeiture is different from a levy or a restitution collection. The government is not collecting a debt you owe; it is claiming the property itself is tainted by criminal activity. Federal courts have confirmed that IRA accounts can be forfeited when the funds inside were derived from or used to facilitate crimes.12The Tax Adviser. Forfeiture of IRA Is Not a Taxable Distribution
Criminal Forfeiture
Criminal forfeiture happens during a prosecution. If you are convicted, the court can order forfeiture of specific property linked to the crime, including retirement 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.12The Tax Adviser. Forfeiture of IRA Is Not a Taxable Distribution The government must show a connection between the property and the criminal conduct, and the court must identify the specific assets to be forfeited.
Civil Forfeiture
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, the government must prove by a preponderance of the evidence that the property is subject to forfeiture, and if the theory is that the property facilitated a crime, it must establish a “substantial connection” between the property and the offense.13Office of the Law Revision Counsel. 18 U.S. Code 983 – General Rules for Civil Forfeiture Proceedings Preponderance is a lower bar than the reasonable-doubt standard of a criminal trial. The government only has to show it is more likely than not that the property is connected to illegal activity.
Other Federal Agency Debts
The IRS is not the only federal collector that can reach an IRA. If you default on a federal loan from an agency like the Small Business Administration, or you owe money for benefit overpayments from the Social Security Administration, the government can pursue retirement assets. The process is different: the agency generally must sue you in court and obtain a judgment before it can enforce against your IRA.
A related program that causes confusion is the Treasury Offset Program (TOP), which intercepts certain federal payments to cover delinquent debts. TOP can offset tax refunds, federal salary, and even some federal retirement payments like OPM annuity checks.14Bureau of the Fiscal Service. Frequently Asked Questions for Debtors in the Treasury Offset Program TOP works by redirecting government payments that are already flowing to you. It does not reach into a private IRA at a financial institution. Your federal tax refund or government pension check could be intercepted, but TOP itself is not the mechanism used to seize an IRA.
State Tax Levies and Medicaid Estate Recovery
State governments can also come after IRA funds, most commonly for unpaid state income taxes. How much protection your IRA has against a state tax levy depends on your state’s exemption laws, which vary widely. Some states provide strong protection that makes retirement accounts difficult for any creditor to touch, including the state. Others allow the tax authority to levy an IRA using a process similar to the federal one.
Federal law also requires every state to operate a Medicaid estate recovery program. When someone who received Medicaid-funded long-term care dies, the state must attempt to recover costs from the deceased person’s estate. No recovery happens while a surviving spouse, a disabled child, or a child under 21 is living in the home.15HHS ASPE. Medicaid Estate Recovery
Whether an IRA is exposed depends on how your state defines “estate.” At minimum, states must recover from assets that pass through probate. States may also adopt a broader definition covering property that passes outside probate, such as accounts with named beneficiaries, joint tenancy property, or living trusts.15HHS ASPE. Medicaid Estate Recovery An IRA with a named beneficiary typically bypasses probate. In narrow-definition states, that IRA may escape recovery. In broad-definition states, it may not.
Where Bankruptcy Protection Stops
The federal bankruptcy exemption you may have read about is real but limited to that context. It shields traditional and Roth IRA balances from the bankruptcy estate up to $1,711,975 (the cap adjusts every three years and applies from April 2025 through 2028), with anything above that available to creditors. ERISA-qualified employer plans like most 401(k) accounts get unlimited protection. None of that stops the government scenarios above: tax levies, restitution enforcement, and forfeiture all operate outside the bankruptcy exemption.
Inherited IRAs sit in a weaker position still. In Clark v. Rameker (2014), the Supreme Court held unanimously that inherited IRAs are not “retirement funds” under the bankruptcy code and cannot be exempted from a bankruptcy estate.16Justia. Clark v. Rameker If you inherited an IRA from someone other than your spouse and you owe money, that account is fully exposed to creditors, including government agencies with claims against you.