Can Your 401(k) Impact Your Social Security Benefits? (2024)

Some people ready for retirement may wonder what happens to their Social Security benefits if they receive distributions from their retirement accounts.

The simple answer is that income that you receive from your 401(k) or other qualified retirement plan does not affect the amount of the Social Security retirement benefit that you receive each month.

However, you may be required to pay taxes on some of your benefits if your annual income, which includes your 401(k) distributions, exceeds a certain threshold.

Key Takeaways

  • Although you must start withdrawals from your 401(k) after age 72 (age 73 if you turned 72 after Dec. 31, 2022), you can begin making withdrawals as early as age 59½.
  • Social Security retirement benefit income does not change due to other retirement income, such as that from 401(k) plans.
  • Social Security income is determined by your lifetime earnings and the age at which you elect to start taking Social Security benefits.
  • Distributions from a 401(k) may increase your total annual income to a point where your Social Security benefit amount is subject to taxes.
  • You could pay tax on up to 85% of your Social Security benefits, according to IRS rules.

401(k) Income Doesn't Change Social Security Benefits

Your Social Security benefits are determined by the amount of money that you earned during your working years—years in which you paid into the program via Social Security taxes. Your 401(k) contributions and withdrawals have nothing to do with the amount of those benefits

And since contributions to your 401(k) are made with compensation received from employment at a U.S. company, you have already paid Social Security taxes on those dollars.

But wait—weren't contributions to your 401(k) account made with pre-tax dollars? Yes, but this tax shelter feature only applies to federal and state income tax, not Social Security tax.

You pay Social Security taxes on the full amount of your compensation in the year you earned it, up to a pre-determined annual limit established by the Internal Revenue Service (IRS). This limit is increased yearly to account for inflation. For 2023, it is capped at $160,200. For 2024, the figure is $168,600.

To sum it up, you'll owe income tax on 401(k) distributions when you take them, but no Social Security tax. Plus, the amount of your Social Security benefit won't be affected by your 401(k) taxable income.

Contributions to a 401(k) are subject to Social Security and Medicare taxes but are not subject to income taxes unless you make a Roth (after-tax) contribution.

The Tax Impact of 401(k) Savings

While you'll owe no Social Security taxes on 401(k) distributions, you may have to pay income taxes on some of your benefits if your annual combined income, which includes those distributions, exceeds a certain amount.

According to the Social Security Administration (SSA), combined income is equal to the sum of:

  • Your adjusted gross income (AGI) (which includes earned wages and withdrawals from any retirement savings accounts like IRAs and 401(k)s)
  • Any nontaxable interest
  • And one-half of your Social Security benefits

If you take large distributions from your traditional 401(k) in any given year that you receive benefits, you are more likely to exceed the income threshold and increase your tax liability for the year.

Annual Income Thresholds

If your total income for the year is less than $25,000 and you file as an individual, you won't be required to pay taxes on any portion of your Social Security benefits. If you file jointly as a married couple, this limit is $32,000.

You may be required to pay taxes on up to 50% of your benefits if you are an individual with income between $25,000 and $34,000, or if you file jointly and have income between $32,000 and $44,000.

Up to 85% of your benefits may be taxable if you are single and earn more than $34,000 or if you are married and earn more than $44,000.

Other Factors Affecting Social Security Benefits

In certain cases, other types of retirement income may affect your benefit amount, even if you collect benefits on your spouse's account.

For example, your benefits may be reduced to account for the income you receive from a government pension or from another job for which your earnings were not subject to Social Security taxes. This primarily affects people working in state or local government positions, the federal civil service, or those who have worked for a foreign company.

Government Pension Offset

If you worked in a government position and received a pension for work that is not subject to Social Security taxes, the Social Security benefits received by a spouse or widow/widower will be reduced by two-thirds of the amount of the pension. This rule is called the government pension offset.

For instance, if you are eligible to receive $1,200 in Social Security but also receive $900 per month from a government pension, your Social Security benefits will be reduced by $600 (2/3 x $900) to account for your pension income. Your total monthly income of $2100 ($1,200 + $900) would become $1,500 ($600 + $900).

This windfall elimination provision (WEP) reduces the unfair advantage given to those who receive benefits on their own account and receive income from a pension based on earnings for which they did not pay Social Security taxes. In these cases, the WEP simply reduces Social Security benefits by a certain factor, depending on the age and birth date of the applicant.

To ensure benefits maintain their buying power, the Social Security administration adjusts them every year in accordance with changes in the cost of living. For example, as of January 2023, theCOLAresulted in an increase to Social Security and Supplemental Security Income (SSI)benefits of 8.7%. For 2024, benefits will increase by 3.2%.

Determining Your Social Security Benefit

Your Social Security benefit amount is largely determined by how much you earn during your working years, your age when you retire, and your expected lifespan.

Based on Earnings

Essentially, the more you earned, the higher your benefits will be. Workers retiring at full retirement age can receive a maximum monthly benefit amount of $3,627 in 2023. In 2024, that figure will be $3,822.

The SSA calculates an average monthly benefit amount based on your average income and the number of years you are expected to live.

Based on When Benefits Start

In addition to these factors, your age when you begin taking benefits also plays a crucial role in determining your benefit amount. While you can begin receiving Social Security benefits as early as age 62, your benefit amount is reduced for each month that you begin collecting before your full retirement age.

The full retirement age is 66 if you were born from 1943 to 1954. If you were born from 1955 to 1960, full retirement age increases from age 66 by two months each year until it reaches age 67. If you were born in 1960 or later, full retirement age is 67.

Furthermore, your benefit amount may be increased if you continue to work and delay receiving benefits beyond your full retirement age. For example, in 2023, the maximum monthly benefit amount for those retiring at full retirement age is $3,627. That amount is $3,822 in 2024.

For those who start taking their benefits early, at age 62, the maximum drops to $2,572. Those who wait until age 70—the latest you can start—can collect a benefit of $4,555 per month. For 2024, those figures are $2,710 and $4,873, respectively.

Are 401k Withdrawals Considered Income for Social Security?

Not income on which you'd pay Social Security taxes. Social Security only considers earned income, such as a salary or wages from a job or self-employment. However, they will be included in income that determines whether, and what portion of, your Social Security benefits are taxable.

What Income Reduces Social Security Benefits?

In the year you reach full retirement age, the SSA will deduct $1 in benefits for every $3 you earn above the annual limit, which is $56,520 in 2023 ($59,520 in 2024). If you are under full retirement age for the entire year, the SSA will instead deduct $1 from your benefit payments for every $2 you earn above the annual limit of $21,240 ($22,320 in 2024).

Should I Use My 401(k) Before Social Security?

Although you must start withdrawals from your 401(k) after age 72 (age 73 if you turned 72 after Dec. 31, 2022), you can start withdrawing from your 401(k) plan as early as 59½ years old. That's sooner than you are eligible to begin receiving social security benefits. However, if you are still working, it is best to defer withdrawing from either in order to maximize your retirement income. In general, it is also advised to take 401(k) distributions to supplement social security retirement income.

The Bottom Line

Income from a 401(k) does not affect the amount of your Social Security benefits, butit can boost your annual income to a point where those benefits will be taxed. This can be a conundrum for someone who's at an age where they're required both, to start withdrawing from their 401(k) and to start collecting Social Security.

Regardless, make sure you are aware of annual changes to Social Security income thresholds. Factor in tax liabilities when planning for retirement or deciding how big a 401(k) distribution to take.

Can Your 401(k) Impact Your Social Security Benefits? (2024)


Can Your 401(k) Impact Your Social Security Benefits? ›

401(k) Income Doesn't Change Social Security Benefits

Does 401k reduce Social Security benefits? ›

Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. They do not lower your Social Security retirement benefits.

What kind of income reduces Social Security benefits? ›

When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net earnings if you're self-employed. We include bonuses, commissions, and vacation pay.

Should you draw from your 401k and delay claiming Social Security benefits? ›

Using Your 401(k) to Delay Getting Social Security and Increase Payments. Your 401(k) can be a bridge from retirement to higher monthly income. Although you can start collecting Social Security at age 62, you can get much higher monthly payments if you wait as long as age 70.

Do 401k withdrawals count as income? ›

Withdrawals from 401(k)s are considered income and are generally subject to income tax because contributions and growth were tax-deferred, rather than tax-free.

What income does not count against Social Security? ›

Unearned income we do not count. (a) General. While we must know the source and amount of all of your unearned income for SSI, we do not count all of it to determine your eligibility and benefit amount. We first exclude income as authorized by other Federal laws (see paragraph (b) of this section).

How much will my Social Security be reduced if I have a pension? ›

How much will my Social Security benefits be reduced? We'll reduce your Social Security benefits by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits.

What would cause my Social Security benefits to decrease? ›

We'll have to reduce your benefits, however, if your earnings exceed certain limits for the months before you reach your full retirement age. If you work, but start receiving benefits before full retirement age, we deduct $1 in benefits for every $2 in earnings you have above the annual limit.

Why would Social Security benefits be reduced? ›

Key Takeaways. Your Social Security check will decrease if you owe certain debts like back taxes or student loans. Taking your Social Security benefits early can reduce your payments by up to 30%. Triggered by higher income, a higher Medicare premium can diminish your monthly Social Security check.

At what age is Social Security no longer taxed? ›

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

At what age is 401k withdrawal tax free? ›

Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.

How do I bridge my Social Security? ›

Here is where the bridge strategy comes into play. Instead of taking Social Security early, which many tend to do, you can instead start to take money out of your IRA/401(k) at the same amount your Social Security benefit would be.

How does retiring early affect your Social Security benefits? ›

In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

Do I have to pay taxes on my 401k after age 65? ›

Key Takeaways

Traditional 401(k) withdrawals are taxed at the account owner's current income tax rate. In general, Roth 401(k) withdrawals are not taxable, provided the account was opened at least five years ago and the account owner is age 59½ or older.

How can I avoid paying taxes on my 401k withdrawal? ›

Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.

Can I draw Social Security at 62 and still work full time? ›

You can get Social Security retirement or survivors benefits and work at the same time. But, if you're younger than full retirement age, and earn more than certain amounts, your benefits will be reduced.

Can you collect a pension and Social Security at the same time? ›

Can you collect Social Security and a pension at the same time? You can retire with Social Security and a pension at the same time, but the Social Security Administration (SSA) might reduce your Social Security benefit if your pension is from a job at which you did not pay Social Security taxes on your wages.

Is Social Security reduced by retirement income? ›

Key Takeaways. Your Social Security benefits are based on the income you earned during your working years. Your benefits are permanently reduced if you take Social Security before you reach your full retirement age. Your benefit amount drops if you decide to work during retirement.

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