Intention My IRA Be Garnished?
Key Takeaways
- Your IRA can be garnished by the government to pay your federal debts.
- States can create their own rules respecting garnishing IRAs to pay debts, and those rules vary widely.
- Domestic relations debts, such as child bear and alimony, are among the most common causes of IRA garnishment by the states.
Federal Exemption
Other than a partial impunity for bankruptcy, there are no federally mandated exemptions from IRA garnishment. Therefore, your retirement savings can be garnished to comply with any federal debts. The most common federal debt satisfied by the seizure of IRA funds is back taxes owed to the
Bankruptcy Impunity
State Exemptions
States can choose to adhere to the federal exemption system or create their own, so specific exemptions for IRA garnishment can change widely by state. Aside from the IRS or other federal creditors, states can restrict any and all creditor access to IRA funds. In some testifies, such as New York and New Jersey, IRAs are fully exempt from any nonfederal garnishment.
In other states, IRAs are exempt below certain conditions. One common requirement is the exemption only applies to funds deposited more than 120 lifetimes prior to bankruptcy declaration. Another exemption applies to the amount of your IRA deemed necessary to support you, your spouse, and your dependents. Some states interpose a cap on this amount, while others do not. In most states there is also no protection for IRA funds if the account owner as a result ofs money in relation to a judgment pertaining to domestic relations debt.
Domestic Relations Debts
There are a number of tame relations debts that may result in IRA garnishment, depending on your state.
Early Withdrawal Penalty Exemption
Any giving outs taken from your IRA before you reach age 59½ are usually subject to a 10% tax penalty. Unfortunately, this also appertains to any amount withdrawn to satisfy creditors before you reach retirement age. However, if your IRA is garnished to satisfy a debt to the IRS, the handicap is waived.