IRA Subject to IRS Levy? | Ed Slott and Company, LLC

IRA Subject to IRS Levy?

By Beverly DeVeny, IRA Technical Expert
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@BevIRAEdSlott

Can an IRA be levied by IRS?


The bad news is that, yes, it can be subject to an IRS levy.

The good news is that such a levy will not be subject to the 10% early distribution penalty if you are under age 59 ½ at the time of the levy. The amount taken by IRS will be reported as a distribution to you and you will owe income tax on the amount taken by IRS.

WHAT NOT TO DO:

If you are under age 59 ½, wait for IRS to do the levy on your IRA account. If you take the funds out of the IRA and use them to pay the IRS, you will owe the 10% penalty. You can save yourself the penalty by waiting for IRS to take the funds.

Don’t empty the account and put the money under your mattress while you wait for things to work out with IRS and think that you can later put the funds back into your IRA. You only have 60 days to put the funds back – and that is only if you have not done another 60-day rollover to or from that IRA in the past 12 months. If you miss the 60 day deadline you will end up with a taxable distribution of your entire account balance, plus the 10% penalty if you are under age 59 ½. IRS will not give you an extension of time to put the funds back as one individual found out in Private Letter Ruling 200428031. IRS denied his request saying “Actions by a taxpayer to deliberately avoid a Service levy do not represent the type of circumstances upon which a waiver of the 60 day rollover requirement should be based under Rev. Proc. 2003-16.”
 

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