Question by : can the IRS or federal government (student loans) garnish a 401k or Roth IRA i am contributing to? I lost a business years back which caused me to default on student loans, i owe the IRS, and a federal restitution as a result of the business loss, can my 401 be garnished or attached? Best answer for can the IRS or federal government (student loans) garnish a 401k or Roth IRA i am contributing to?:
Answer by a tax lady
You can agree to let the IRS take your retirement money. However, if you do, you will owe income tax (but not penalty) on the money. Note, when the IRS levies retirement accounts, it's because all other collection activities have failed. The IRS is nice enough to make these the last choice, but will levy if you won't pay.
Answer by Reena
No... Your 401K and Roth IRA are safe from garnishments as long as you don't liquidate them yourself.
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You will want to be very careful when considering using your 401k or IRA to pay up your mortgage. It still can be a good solution to avoiding foreclosure. One of the main advantages of using an IRA or 401k is you have up to 60 months to pay it back if you take a loan from the account, There are no credit checks, whatever you choose to do, you will be able to do it since It is your money.
The loan payment is deducted from your paycheck. You can get up to 50% of your retirement money or $ 50,000 which ever is less if you get a loan and as long as you do not default on your payments, you will not have to pay any penalties. You can also be eligible for what they call a hardship distribution, but will have to pay income tax on the money.
The reason why I said that you have to be careful in the beginning is because taking money out of your 401k can be a bad solution if you are getting close to your retirement.
You will have to pay it back with interest if you lose your job and default on the loan. If you qualify for a hardship distribution you will still have to pay income tax on the money if you decide to just take cash withdrawal, you will have to pay IRS the 10% penalty along with income tax.If tapping into your 401K or IRA to avoid foreclosure is your last resort, then taking out a loan from your 401k would be the better choice. At least you will be putting the money back with interest. You will want to make sure this solution will alleviate the problem and not add to it.
Recommend 401K to Avoid Foreclosure Issues
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