When Can Creditors Make a Claim Against a Retirement Account?

Q: I work for a 403(b) plan sponsor, and we recently received a notice from the IRS that a levy has been placed on a participant’s 403(b) account balance. I thought that creditors could not claim a participant’s 403(b) account balance—can the Experts explain?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Generally, creditors cannot make a claim against a retirement plan, but there is an exception to this rule for federal tax levies and garnishments. An IRS tax levy, garnishment or other judgement for the payment of back taxes is an exception to the anti-assignment rules under Treas. Reg. Section 1.401(a)-13, which allow a participant’s 403(b) account balance to be used to satisfy outstanding unpaid taxes. Having said this, no money from the participant’s 403(b) account balance can actually be paid to the IRS until the participant has the right to withdraw such funds under the terms of the plan.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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