Should I Raid My IRA to Pay the IRS?


Dear Steve,

I have recently received letters from the IRS about taxes owed from previous filings (2012, 13, 14). I don’t have the financial resources to pay them outright. I am considering using Roth IRA funds to settle the debts. The IRA was initiated over 5 years ago.

One of the exceptions to the early distribution penalty is an IRS levy. Do the letters qualify as a “levy” or do I have to wait until the IRS actually begins “levying” actions? Thx!



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Dear Raz,

Before you do anything like raid your retirement funds you need to be aware that a consumer bankruptcy filing can discharge tax liabilities more than three years old. You should talk to a bankruptcy attorney before you do anything and see how much that could benefit you.

Also, you can negotiate with the IRS and pay what you can afford. According to the instructions for IRS Form 9465 the payment “maximum term for a streamlined agreement is 72 months. In certain circumstances, you can have longer to pay or your agreement can be approved for an amount that is less than the amount of tax you owe.”

If you can offer to pay something towards the debt, then you might want to examine the Offer in Compromise approach. Essentially this is IRS debt settlement. More details on the program can be found here.

As the IRS says about the Offer in Compromise solution, “We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. ”

What is clear is you need to explore more options before leaping to rob your retirement. It would be a shame to retire with less money than you could just because you dond’t explore these other options first.

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