IRS may levy accumulated funds in a 401(k)

Plain-English summary

Chief Counsel advised that the IRS is not limited to levying retirement-plan distributions as they are paid. The IRS may also levy the accumulated funds in a 401(k) when it follows the procedures and policies in the Internal Revenue Manual. The advice distinguished procedures for levying retirement income from those for levying the corpus of pension and retirement plans. It also stated that section 72(t)(2) prevents the early-withdrawal penalty from applying to the levy.

Ruling snapshot

• Question: May the IRS levy funds accumulated inside a 401(k), rather than waiting to levy distributions as they are paid?
• Outcome: Advice given that the IRS may levy the accumulated 401(k) funds under its retirement-plan levy procedures.
• Key authorities: IRC §§ 72(t)(2) and 6331; IRM 5.17.3.10.19, 5.11.6.2, and 5.11.6.3

Full text (IRS public release)

ID:      CCA_2019061011065052
UILC:    6331.00-00

Number: 201927019
Release Date: 7/5/2019
From:
Sent: Monday, June 10, 2019 11:06:50 AM
To:
Cc:
Bcc:
Subject: RE: levy on 401k


Good morning.

Following up on the voice message from last week.

As I mentioned in the voice message, it is a mischaracterization of the CCA cited and of
the Service’s policies/procedures to state that the Service can only levy distributions as
they are made. The Legal Reference Guide sets out the Service’s position on levying
on both retirement income and the corpus of retirement plans. See IRM
5.17.3.10.19. The Service’s procedures for levying on retirement income are found in
IRM 5.11.6.2 and, relevant in your case, procedures for levying on funds in pension and
retirement plans—including 401(k)s—are found in IRM 5.11.6.3.

The Service can levy on funds accumulated in a 401(k) in accordance with the
procedures and policies set out in IRM 5.11.6.3. And, as the IRM states, the early
withdrawal penalty would not apply, per section 72(t)(2).