IRS Rule Changes & Government Seizure of Your 401k

  • The partial government shutdown in December and January affected 800,000 federal employees who were furloughed or working without pay.
  • The Treasury department released some contingency measures, such as floating interest-free loans to federal workers, but these measures did not address the potential impact on retirement accounts. The IRS announced changes to its retirement plan rules on Aug. 30, 2018, allowing federal workers access to retirement accounts during the shutdown.
  • The workers can tap up to 50% of their vested balance, up to $50,000.

The IRS announced changes to its retirement plan rules on Aug. 30, 2018, giving federal workers access to retirement accounts during the partial government shutdown, which at the time had lasted 24 days. The changes allow federal employees who are furloughed from their jobs access to a portion of their retirement accounts. Employees will have the option, during the shutdown, to withdraw a portion of their funds up to $50,000, or 50% of their vested balance.
The change was meant to assuage fears of workers taking desperate measures, such as taking out loans against their home, or forgoing medical benefits.



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government confiscation of 401k

Government Seizes 401k Funds

In July 2020, the IRS ruled 401k funds could be seized and liquidated during a time of crisis, without waiting for a court hearing.
You Must File a Tax Return
The IRS says it has power to seize 401k funds without waiting for a judge's order, and that 401k funds can be seized in a civil case, instead of a criminal one.
The 2020 Tax Season
The IRS has announced its intent to crackdown on those who haven't filed taxes. Specifically, the agency is going after people's retirement accounts.

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Gold IRA: Should You Open One To Save For Retirement?

IRS Rule Changes

After the IRS's proposed changes to the 401k plan rules, employers would be prohibited from making matching contributions at any time other than a regularly scheduled payroll period, or once a year. In addition, employers would be prohibited from automatically enrolling employees in a plan if they haven't actively opted in. Other changes include:
The elimination of "safe harbor" provisions that allow employers to defer taxes on matching contributions until distributions are taken.

Employers would be required to notify employees about the plan's vesting schedule at the time of enrollment.

Employers would be prohibited from automatically rolling over participants' balances into IRAs when they leave the company.

Employers would be required to notify participants about the plan's fees.

Employers would be required to make participants aware of their plan's investment options and permitted investment methods and options

The elimination of the opportunity for employers to make loans from their 401k plan.

The elimination of the opportunity for employers to provide participants with advice regarding 401k plan investments