How Does the IRS Look at Retirement Accounts?
As is usual with the law, it depends. First, the IRS tax lawyer will consider the age (how close to retirement) of the taxpayer and their ability to access the retirement account funds (e.g. some taxpayers borrow against the balance of their 401k and can’t get more money out until the initial loan is paid off) compared to the taxpayer’s general financial stability.
If your tax debt lawyer can argue that liquidating the 401-k or IRA would cause undue economic hardship, then may be able to prevent the retirement account liquidation. This is easier to do for those in or nearing retirement as liquidating the 401k would eliminate an important source of income that the taxpayer may need to maintain a reasonable standard of living.