Can Your Retirement Income and Social Security Be Garnished? What You Need to Know

Understanding whether your Social Security and retirement income can be garnished depends largely on the entity seeking repayment.

Are Social Security benefits subject to garnishment? In some cases, no; in others, yes. The key factor is who is initiating the garnishment. Government agencies like the U.S. Treasury and Social Security Administration have the authority to garnish benefits to cover unpaid child support, federal student loans, and back taxes.

Essential Points to Remember

• The U.S. Treasury and Social Security Administration can garnish your benefits for debts such as back taxes, child support, or defaulted federal student loans.
• No court order is necessary for the IRS to garnish your benefits if you owe taxes.
• You may be required to pay 15% of your Social Security for federal tax debts, and up to 65% for overdue alimony or child support.

How Wage Garnishment Works

Garnishment occurs when a creditor wins a court judgment against you and obtains a court order to seize funds from your wages, bank accounts, or assets to repay the debt.

Are all your funds, including Social Security and retirement accounts like 401(k)s or IRAs, vulnerable? The answer depends on the type of creditor and the nature of the debt.

Garnishment by Commercial Creditors

Federal benefits such as Social Security, Veterans Affairs benefits, railroad retirement, federal student aid, and Office of Personnel Management retirement benefits are protected from garnishment by commercial creditors.

Credit card companies, auto lenders, medical providers, and payday loan lenders cannot garnish these federal benefits even if payments are overdue.

Thanks to the Employment Retirement Income Security Act of 1974 (ERISA), 401(k) accounts are generally shielded from garnishment as long as funds remain in the account. However, IRAs have less protection and may be subject to garnishment.

Banks must review a two-month transaction history to identify protected Social Security deposits and safeguard those funds during garnishment.

While Social Security and certain retirement benefits are protected, creditors may still garnish wages and other assets like homes or vehicles, depending on state laws.

Garnishment by the Federal Government

If you owe back taxes to the federal government, up to 15% of your Social Security benefits can be garnished. Retirement funds such as 401(k)s and IRAs may also be affected.

For unpaid alimony or child support, the federal government may garnish as much as 65% of your Social Security benefits. The IRS can garnish benefits without a court order.

Upon receiving a garnishment order, banks have two business days to review and potentially freeze your accounts.

You can avoid garnishment by negotiating payment plans with the IRS. Failure to comply may result in continued garnishment.

Important Consideration

Retirement plans governed by ERISA, like 401(k)s, are usually protected from creditor judgments.

Federal Student Loan Defaults and Garnishment

If you default on a federal student loan, the government may garnish the lesser of 15% of your monthly benefit, the amount exceeding $750 per month, or the outstanding loan balance. This ensures you retain at least $750 from your monthly Social Security or retirement benefits.

For example, with $850 in monthly benefits, the maximum garnishment is $100. This rule applies only to federal student loans, not private loans.

Are Pensions and Social Security Shielded from Creditors?

Generally, Social Security benefits are exempt from garnishment and levies when directly deposited. However, the Department of the Treasury can levy up to 15% of benefits for overdue federal taxes.

Limits on Social Security Garnishment

Child support or alimony overdue by 12 weeks or more can result in garnishment of up to 65% of your Social Security benefit. Court-ordered restitution may garnish up to 25%, while delinquent student loans and tax debts can lead to garnishment of up to 15%.

Is Retirement Income Always Protected?

Protection varies. Social Security and 401(k)s are generally shielded from most creditors, but IRAs are more exposed. The type of debt and creditor influence the level of protection.

Final Thoughts

Only the federal government has the authority to garnish Social Security and federal retirement benefits. If you face potential garnishment, seek legal advice. The American Bar Association offers resources for free or affordable legal assistance.

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