The IRS Can Seize Your IRA Account If It Remains Inactive

When a financial account remains dormant — meaning there’s been no activity on it for an extended period of time — financial institutions are required to report the inactivity to the state. Assets that have remained inactive for a certain number of years can be declared abandoned and can be claimed by the state, assuming the owner is unable to be contacted. Sometimes these accounts have been abandoned because the owner has died, sometimes the owner has become ill and fails to manage the account. It’s not common for IRAs to become dormant if wills and trusts are up to date and if account owners have attached beneficiaries to them. It’s called escheatment and states have been using this tactic more aggressively to bring in money. Escheatment dates all the way back to feudal England, but over time it became the right of a government to claim abandoned and/or unclaimed property. You might think of this as a government-run financial asset lost and found. Unfortunately, in recent years, many states have turned escheatment from a process intended to make sure abandoned and unclaimed property doesn't lay stagnant forever, to a process intended make up for budget gaps and shortfalls. To that end, many states have changed the laws governing their escheatment process to make it easier to classify funds as abandoned. In the event that property is escheated, a state will often liquidate the property and turn it into state funds. However, if a client has a valid claim to the property, there is generally a procedure they may follow to have their escheated funds returned.