Can My 401(K) Be Seized or Garnished?

Claire Boyte-White is the lead writer for NapkinFinance.com, co-author of I Am Net Worthy, and an Investopedia contributor. Claire's expertise lies in corporate finance & accounting, mutual funds, retirement planning, and technical analysis.

Updated August 21, 2024 Fact checked by Fact checked by Suzanne Kvilhaug

Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.

Part of the Series 401(k) Plans: The Complete Guide
  1. 401(k): What It Is, How It Works, Pros, and Cons
  2. Beginner's Guide to 401(k) Types
  3. The Rules of a 401(k) Retirement Plan
  4. Is a 401(k) Worth It?
  5. Are 401(k)s FDIC-Insured?
  6. 401(k) Age Limits: Can You Be Too Young for One?
  1. How Much Should I Contribute to My 401(k)?
  2. 401(k) Contribution Limits
  3. How 401(k) Matching Works
  4. What Is a Good 401(k) Match? How It Works and What's the Average
  5. Vesting: What It Is and How It Works
  6. My Employer Doesn't Offer a 401(k). Should I Care?

When Changing Jobs

  1. When You Leave Your Job
  2. Why Might Your 401(k) Be Unavailable After You Leave a Job
  3. How to Transfer a 401(k) to a New Employer

Tips and Tricks

  1. 401(k) or IRA: Get Both
  2. Top 7 Reasons to Roll Over Your 401(k) to an IRA
  3. Are Contributions Tax Deductible?
  4. Can My 401(k) be Garnished or Seized?
CURRENT ARTICLE

Couple looks at paperwork

If you're struggling with debt, you may worry that the funds in your company 401(k) account could be tapped by creditors to satisfy your financial obligations.

Fortunately, those assets are generally safe from seizure or garnishment by creditors, such as banks, at least as long as they remain in the 401(k) account. The same does not generally apply if you owe back taxes or penalties to the federal government. Depending on the state in which you live, your account may also be vulnerable if you're a small business owner with your own independent 401(k).

Key Takeaways

Your 401(k) Is Generally Safe From Commercial Creditors

The reason your 401(k) and other qualified retirement plans are off-limits to commercial creditors is rooted in their special legal status. Under the Employment Retirement Income Security Act of 1974 (ERISA), the funds in your 401(k) only legally belong to you once you withdraw them as income. Until then, they're legally the property of the plan administrator, who cannot release them to anyone but you.

This ERISA protection means that savings held in a regular 401(k) are shielded from garnishment by commercial creditors, even if you file for bankruptcy. Indeed, the protection for the funds held in 401(k) accounts is greater than for those held in an individual retirement account (IRA), which are not covered by ERISA and are only protected to a certain limit. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), $1 million of your IRA savings is exempt from garnishment in the event of bankruptcy.

It's worth noting, however, that funds are protected only as long as they are in your 401(k) account. Once you withdraw them, for any reason, those distributions are fair game for creditors to pursue.

A Solo 401(k) Could Be More Vulnerable

Independent 401(k)s appeal to single-person companies in part because of their freedom from ERISA's compliance requirements. Their downside, however, is that these accounts do not enjoy the federal protections of ERISA against creditors, and their funds may be more readily accessed by commercial creditors than their company-sponsored counterparts.

That said, your solo 401(k) may well be covered by other protections, including state legislation that protects non-ERISA retirement accounts. If you have such an account and are concerned about the seizure of their funds by creditors, seek professional assistance from a financial advisor or lawyer who is familiar with the treatment of solo 401(k)s in your state.

The Feds Can Tap Your 401(k) for Taxes

Your 401(k) is not exempt from garnishment or seizure if you owe federal income taxes in arrears. In general, if you are eligible to take a distribution from your 401(k), the IRS can seize it to settle your debt. However, if you are not permitted to take distributions from your account due to age or other plan restrictions, the IRS is not allowed to override these regulations.

Other levels of government lack the power of federal authorities. For the most part, you cannot be forced to use funds in your 401(k) to pay state or other taxes.

The federal government can also potentially seize or garnish your 401(k) if you have committed a federal crime and are ordered to pay fines or penalties. In addition, you may be ordered to withdraw from your plan if you are found, in a civil or criminal judgment, to have mishandled your plan or committed fraud.

While the IRS can obtain funds from your 401(k) to pay back taxes, state and local governments do not enjoy that same power.

Alimony and Child Support May Be Taken From Your 401(k)

If you owe unpaid child support or alimony, you may be court-ordered to withdraw funds from your 401(k) to settle the debt. If you divorce, your spouse may be entitled to a portion of your account.

In such cases, a spouse who submits what's known as a qualified domestic relations order (QDRO) may succeed in being added to your 401(k) as an "alternate payee." A court may then order funds from the account to be directed to your spouse rather than to you, should you be in significant arrears on those family obligations.

While the laws governing QDROs vary by state, these orders may succeed even if you are not yet old enough to withdraw funds without penalty, and may allow those penalties to be waived for withdrawals required to meet alimony or child support obligations.

Advisor Insight

Donald P. Gould
Gould Asset Management, Claremont, CA

The general answer is no, a creditor cannot seize or garnish your 401(k) assets. 401(k) plans are governed by a federal law known as ERISA (Employee Retirement Income Security Act of 1974). Assets in plans that fall under ERISA are protected from creditors.

One exception is federal tax liens; the IRS can attach your 401(k) assets if you fail to pay taxes owed. IRAs do not fall under ERISA, but do provide some degree of creditor protection.

In general, the first $1 million in IRA assets is protected against a bankruptcy claim. Individual state law may provide additional protection beyond this.

Can the Government Take My Retirement Money?

If you owe federal income taxes, the Internal Revenue Service is allowed to garnish your 401(k) or other retirement accounts to collect, provided you are eligible to take distributions. However, state and local governments are not allowed to follow suit.

What Retirement Accounts Are Protected From Creditors?

Commercial creditors cannot go after your 401(k) or other qualified retirement plans because technically, the funds in these accounts don't legally belong to you until you withdraw them. Before the withdrawal, the funds are legally owned by the plan administrator, who is not allowed to release them to anyone other than you. (An exception is with alimony or child support payments.) In some states, independent or solo 401(k)s can be vulnerable to garnishment.

Can Creditors Garnish My IRA?

Unlike 401(k)s and other qualified retirement plans, an individual retirement account (IRA) can be garnished by a number of creditors, as it is not protected by the Employee Retirement Income Security Act (ERISA). However, if you declare bankruptcy, up to $1,512,350 in IRA holdings are exempt from creditors, as of 2024.

The Bottom Line

Typically creditors can't seize or garnish the assets in your 401(k), because it is protected by ERISA. There are three main exceptions: with the federal government, for back taxes; with some child support payments; and with the solo 401(k), which is more vulnerable.