Retirement accounts protected by bankruptcy laws? Not always.

Q: Can the government touch your 401(k) if you owe taxes or file bankruptcy?
B.D., via e-mail

A: It depends on which government. States do not have the same authority as the Internal Revenue Service to impound any part of a participant's account, says Ivory Johnson, a certified financial planner in Annapolis, Md. Since most 401(k)s are protected by ERISA Title I, a federal law that governs these plans, state governments cannot attach an account for taxes owed.

The federal government, however, has the power to do so in some situations if the plan does not cover more than one worker, he says.

One advantage of a 401(k): The assets are legally protected from creditors, Mr. Johnson says, as long as the plan is required to distribute a summary plan description. This document recaps particulars of plan benefits, eligibility requirements, funding arrangements, and participant rights. This protection applies even in the event of a bankruptcy.

The only times protection is not afforded by Title I are when Qualified Domestic Relations Orders (QDRO) or federal tax levies are issued. A QDRO usually stems from a divorce and gives a spouse a portion of 401(k) assets just as other parts of the marital estate are divvied up.

In the case of a federal tax levy, Johnson says that the plan may refuse to process a distribution if the participant is not eligible to receive distributions from the plan.

Only in "flagrant and aggravated" situations will the IRS enforce the levy before the participant is eligible for distributions, he says.