Expenses, debts and assets
Your 401(k) and IRA in an IRS Hardship Analysis
A retirement account is an asset. Whether the IRS goes after it depends on your age, your conduct, and whether you need the money to live.
Clients often believe their 401(k) is untouchable. It is not. Federal law gives the IRS the ability to levy retirement accounts. But the IRS's own manual tells employees to be careful before they do, and the analysis turns on facts you can document.
Retirement funds are an asset
IRM 5.15.1.28 begins plainly: "Funds held in a retirement plan, including a profit-sharing plan, are considered an asset and may be reachable by levy." Form 433-A (Rev. 6-2026) asks for retirement assets on the investments lines, 14a through 14d, which expressly include "retirement assets such as IRAs, Keogh, 401(k) plans." Form 433-F includes IRAs, Keogh plans, SEPs, 401(k) plans and profit sharing plans in Section A.
List them. A hardship request that omits a retirement account will not survive the IRS's own research.
Three questions before a retirement levy
IRM 5.15.1.28 summarizes the guidance in IRM 5.11.6.3 for deciding whether to levy a retirement account. Employees should:
- Consider other assets available to collect from.
- Determine whether the taxpayer's conduct has been flagrant.
- Determine whether the taxpayer depends on the money in the retirement account, now or in the near future, for necessary living expenses.
That third question is the hardship question. If you are 64, out of work, and your IRA is how you will pay rent for the next ten years, the account is not surplus. Document it. A projection of your retirement income against your necessary living expenses, using the IRS standards, makes the point in the IRS's own language.
Voluntary contributions: the red flag
This is where people hurt themselves. IRM 5.15.1.28 tells employees to advise taxpayers that "contributions to voluntary retirement plans are not a necessary expense." It goes further: "continuing to make voluntary contributions to retirement accounts, while asserting an inability to pay an amount that is owed, may be considered flagrant conduct, and could result in a levy on retirement accounts."
Read that twice. If you are telling the IRS you cannot pay anything while deferring 6 percent of your paycheck into a 401(k), you are building the flagrant conduct case against yourself. Before you file a hardship request, stop voluntary deferrals and document that you stopped.
The IRM leaves you some choice: "If taxpayers wish to continue making contributions, they must divert the money from allowed expenses, or use the amount allowed for miscellaneous expenses under national standards, but they must be able to make the payments required on an installment agreement." That works in a payment plan. It does not fit a hardship claim, where you are saying there is nothing left.
Contributions required as a condition of employment are different. Form 433-F lists "Retirement (Employer Required)" separately from "Retirement (Voluntary)" in Section H.
How the IRS values a retirement account
IRM 5.15.1.28 has a valuation table. In summary:
| Situation | How equity is figured |
|---|---|
| IRA, 401(k) or Keogh; taxpayer not retired and not close to retirement and age 59 1/2 | Cash value less the cost of liquidating and the early withdrawal penalty |
| Same accounts; taxpayer retired | Determine whether the income is needed for necessary living expenses. If not, cash value less liquidation costs, and the early withdrawal penalty if under 59 1/2 |
| Same accounts; taxpayer close to retirement and 59 1/2 | Consider whether the income will be needed at retirement; consider timing liquidation to avoid the penalty |
| Employer plan required as a condition of employment, withdrawals permitted | Amount the taxpayer can withdraw less withdrawal costs |
| Employer plan, no withdrawals but loans permitted | The loan value |
| Plan cannot be borrowed on or liquidated until separation; taxpayer not eligible to retire and not separating | No equity |
The IRM adds: "When the taxpayer will liquidate the retirement plan, allow any penalty for early withdrawal and the current year tax consequence." A $40,000 balance is not $40,000 of collection potential. After income tax and any early withdrawal penalty, it may be far less.
Pensions and distributions as income
Once you are drawing on a retirement account or pension, the money shows up as income. Form 433-A line 26 covers distributions including IRAs, and lines 27 and 28 cover pensions. IRM 5.15.1.12 says pensions "could be used as an asset or as part of the income stream," and adds that "Discretion should be used in determining if pension income should be levied."
For a retiree living on Social Security and a small pension, the analysis is usually about income, not equity. If the income does not cover allowable expenses, that is a hardship case.
A plan you cannot touch
The last row of that table is worth noticing. If your employer's plan cannot be borrowed against or withdrawn until you leave the job, and you are not eligible to retire and not leaving, the IRM says "The plan has no equity." That does not mean the IRS will forget it exists. It means it does not count as money available today.
Talk to the IRS before it acts
IRM 5.15.1.28 says that before a levy, the IRS should attempt to advise the taxpayer that retirement plans may be subject to levy, but that failing to have that discussion does not prohibit the levy. Do not wait for the warning. If a retirement account is your safety net, raise the issue yourself, with the numbers.
Taking a distribution on your own
Some taxpayers decide to cash out a retirement account and pay the IRS before anyone asks. Sometimes that is the right call, especially when the balance is small relative to the tax and the alternative is years of accruing interest and penalties. Often it is not, especially when the account is all that stands between you and poverty later in life.
If you are considering it, run the after-tax math first. The distribution itself can create a new income tax liability for the year it is taken. If you do not plan for that, you may solve one tax problem by creating the next one. The IRM recognizes this when it tells employees to allow the early withdrawal penalty and "the current year tax consequence" and to consider requiring an estimated tax payment.
Inherited accounts and plans in payout
An inherited IRA, or an annuity already in payout, still appears on the financial statement. The questions are the same ones the IRM asks of any retirement asset: what can be withdrawn, at what cost, and whether you need the money for necessary living expenses. List the account, the required distributions, and the terms, and let the analysis run.
A worked example
A 61-year-old taxpayer in Pinellas County lost his job, lives alone, and has a $38,000 IRA. He has no other significant assets. His only income is $1,900 a month in Social Security, which he started early. His allowable expenses, using the June 29, 2026 standards, include the $867 National Standard, $90 for out-of-pocket health care because he is under 65, and housing that the Pinellas one-person standard caps at $2,026.
His allowable expenses exceed his income before any transportation is counted. The IRA is the only thing standing between him and an inability to pay rent when his savings run out. That is the third question in IRM 5.15.1.28: he depends on the account for necessary living expenses in the near future. Documented properly, that case should not end with a retirement levy.
Retirement money is protected by facts, not by myth. Get the facts on paper.
Frequently asked questions
Can the IRS levy my 401(k) or IRA?
Yes. IRM 5.15.1.28 says retirement funds are assets and may be reachable by levy, but employees must consider other assets, whether the taxpayer's conduct was flagrant, and whether the taxpayer depends on the funds for necessary living expenses.
Should I keep contributing to my 401(k) while asking for hardship?
Voluntary contributions are not a necessary expense, and IRM 5.15.1.28 warns that continuing them while claiming inability to pay may be considered flagrant conduct.
How does the IRS value my IRA?
Generally at cash value less liquidation costs and any early withdrawal penalty, with the current year tax consequence allowed when the plan is liquidated.
What if my employer's plan does not allow withdrawals?
If the plan cannot be borrowed on or liquidated until separation and you are not eligible to retire or separating, IRM 5.15.1.28 says the plan has no equity.
Is my pension income or an asset?
IRM 5.15.1.12 says pensions could be used as an asset or as part of the income stream, and that discretion should be used in deciding whether to levy pension income.
Not sure where your numbers land?
Darrin T. Mish reviews IRS financial statements and hardship requests for taxpayers nationwide. Bring your notices and your budget, and get a straight answer.
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