When Your Bank and Retirement Accounts Can Be Seized

In recent months, my email inbox received an increasing number of questions about the ability of banks or the government to seize bank accounts. The concerns were raised, of course, by articles and videos on the internet, and the creators are selling various products and services.

Most of the presentations say accounts over $5,000 can be seized. I believe the $5,000 amount is used only to dis-\qualify those without enough money to buy the products and services.Here are the facts. During the European financial crisis of a few years ago, banks in Cyprus were authorized to take money from some bank accounts to shore up the banks’ capital. In Ireland, for four years beginning in 2013, a levy of 0.6% was placed on assets held in pensions.

Again, this was done to improve the capitalization of banks during the crisis.These actions are known as bail-ins. Instead of the government or an outside entity bailing out failing banks, funds from a bank’s depositors are used to improve the bank’s financial position.

The only bail-in provision in U.S. law was part of the Dodd-Frank financial regulation law enacted after the financial crisis.Under Dodd-Frank, a bank can take some cash from depositor accounts under limited circumstances. The bank must begin a process known as “orderly liquidation.”

Essentially, the bank must be failing and file a statement to that effect with regulators. Then, the bank can take depositors’ money to the extent an account exceeds the FDIC insurance maximum, currently $250,000 per account. The bank also must exchange the cash for stock in the bank of equivalent value, based on the value of the stock on the date of the exchange.

You easily can avoid being part of a bail-in by limiting your account balances to the FDIC insurance limit. Also, avoid doing business with a bank that has unstable finances.What about your retirement plans, such as IRAs and 401(k)s? The IRS might be able to seize an account but only after assessing you for back taxes.

Even then, it has to go through a formal process of levy and seizure. Plus, retirement accounts have a special status in the law providing them extra protection from creditors, including your bank.

There are federal and state civil forfeiture laws that allow many government agencies (not only federal agencies) to seize assets under certain circumstances.

The laws were created to enable governments to fight crime by seizing the assets of criminals and suspected criminals. That prevents use of the assets to commit crimes or to fight law enforcement.Under most of civil forfeiture laws, the police or a government agency only has to believe that the money or property was or will be connected to some sort of criminal activity.

The police or a government agency does not need a warrant or other court order.

Over the years, there have been media reports demonstrating how different government agencies abused the laws by seizing property to fund budget deficits, substitute for tax increases, or convince people to plead guilty to lesser crimes so their assets will be returned.

In response, a number of the agencies have said they will limit their use of civil forfeiture. But the laws remain on the books.Outside of the laws I outlined here, it would take an act of Congress to expand the ability of a bank, the IRS, or others to seize your financial accounts.