Function

• Normally, IRA accounts are shielded from creditor claims up to $1 million. However, the IRS makes exceptions to this rule. One of the exceptions is in the event that you owe taxes to the government. This makes sense, since the IRS is giving you a tax break on the money inside of the IRA. In a sense, when you owe taxes to the IRS, you lose the benefit of being able to defer taxation on your current income.
  
  

Significance

• The significance of having your money taken as part of a tax lien is that your retirement savings could accumulate to far less than you had hoped. Once the IRS has collected the full balance of what you owe, you can still contribute to the IRA, and you can start to rebuild your retirement savings.
  
  

Time Frame

• The IRS first places a federal tax lien on your IRA for the payment of unpaid and past-due taxes. Then, the IRS sends you a notice of intent to levy. Finally, the IRS levies your IRA account. This means that the IRS seizes the money in your IRA account to pay your tax debt. Before the IRS levies your IRA, you will have an opportunity to pay the IRS the money owed. The exact time frame you have to pay may vary according to your circumstances. However, you generally have 30 days from the day you receive the intent to levy to pay off the tax bill in full. You may be given extra time if you negotiate a payment plan with the IRS.
  
  

Prevention/Solution

• If you can pay your tax bill in full from other sources outside of your IRA, it may be in your best interest to do so. Alternatively, you can attempt to file IRS form 656 for an offer in compromise if you believe that there is no way for you to pay off the full account balance without serious financial hardship. The IRS will determine whether to accept or reject your offer. If they accept your offer, you may be able to save at least part of your IRA from being taken from you.
  
  

Considerations

• When the IRS places a lien against your IRA, immediately contact a tax attorney. Because tax laws are complex, you may need the help of a professional tax specialist in order to know what the best option for you to take is. You generally have 30 days to make a decision as to how you will pay your tax bill, but a tax attorney may be able to help you file for an extension or help you set up payment arrangements, or even help you reduce your tax liability.