Does Social Security count 401k withdrawals as income?
Income from a 401(k) does not affect the amount of your Social Security benefits, but it can boost your annual income to a point where those benefits will be taxed.
Retirement income does not count as income for Social Security and won't affect your benefit amount.
For the earnings limits, we don't count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains.
Is a 401(K) Withdrawal Considered Earned Income or Capital Gains? Traditional 401(k) withdrawals are considered income (regardless of your age). However, you won't pay capital gains taxes on these funds.
The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).
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.
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.
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.
Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits. For tax years after 2003, members of the military who receive excludable combat zone compensation may elect to include it in earned income.
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. See What Income Is Included in Your Social Security Record for more information.
How do 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.
There is a good reason, however, to consider relying on 401(k) withdrawals for as long as possible before taking Social Security retirement benefits. Delaying benefits longer can result in a higher benefit amount.
You can get Social Security retirement benefits and work at the same time before your full retirement age. However your benefits will be reduced if you earn more than the yearly earnings limits.
Only earned income, your wages, or net income from self-employment is covered by Social Security. If money was withheld from your wages for “Social Security” or “FICA,” your wages are covered by Social Security.
401(k) Income. When you retire, you can collect both Social Security retirement benefits and distributions from your 401(k) simultaneously. The amount of money you've saved in your 401(k) won't impact your monthly Social Security benefits.
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.
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.
The Social Security five-year rule is the time period in which you can file for an expedited reinstatement after your Social Security disability benefits have been terminated completely due to work.
Income limitations: Selling your home does not directly impact your eligibility for Social Security benefits. However, if you earn income from the sale, it could potentially affect the taxation of your benefits or eligibility for certain assistance programs.
If you withdraw money from your 401(k) before you're 59 ½, the IRS usually assesses a 10% tax as an early distribution penalty. That could mean giving the government $1,000, or 10% of a $10,000 withdrawal, in addition to paying ordinary income tax on that money.
Do you have to claim 401k withdrawal on taxes?
Generally, anyone can make an early withdrawal from 401(k) plans at any time and for any reason. However, these distributions typically count as taxable income.
What is the 3% rule in retirement? The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule).
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
If you are at least 65, unmarried, and receive $15,700 or more in nonexempt income in addition to your Social Security benefits, you typically need to file a federal income tax return (tax year 2023).
Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.
References
- https://www.josephthomas.us/two-out-of-five-years-rule/
- https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-income
- https://turbotax.intuit.com/tax-tips/retirement/an-early-withdrawal-from-your-401k-understanding-the-consequences/L0M8yJMYS
- https://quizlet.com/607173065/crpc-making-the-most-of-social-security-retirement-benefits-flash-cards/
- https://www.usatoday.com/story/money/taxes/2024/01/04/extra-standard-deductions-seniors-2024/72088966007/
- https://www.fool.com/knowledge-center/does-the-irs-know-if-i-cashed-out-a-401k.aspx
- https://finance.yahoo.com/news/retirement-planning-much-average-person-000026006.html
- https://smartasset.com/retirement/social-security-vs-401k
- https://www.portebrown.com/newsblog-archive/what-are-the-tax-implications-of-gifting-money-to-family-members
- https://www.fool.com/retirement/2024/01/30/will-my-retirement-plan-withdrawals-impact-my-soci/
- https://www.ssa.gov/policy/docs/policybriefs/pb2016-01.html
- https://www.irs.gov/retirement-plans/correct-common-hardship-distribution-errors
- https://www.ssa.gov/benefits/retirement/matrix.html
- https://www.moneyfit.org/gross-vs-net/
- https://www.investopedia.com/articles/personal-finance/061915/how-your-401k-taxed-when-you-retire.asp
- https://financialrights.org.au/factsheet/financial-hardship/
- https://www.ssa.gov/pubs/EN-05-10024.pdf
- https://www.ssa.gov/benefits/retirement/planner/agereduction.html
- https://meetbeagle.com/resources/post/do-401k-withdrawals-count-as-income
- https://www.ftb.ca.gov/file/personal/income-types/early-distributions.html
- https://stewardingram.com/what-is-non-taxable-income/
- https://www.kiplinger.com/taxes/types-of-nontaxable-income
- https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-hardship-distributions
- https://www.farrin.com/disability-lawyers/what-counts-income-resources/
- https://www.findlaw.com/socialsecurity/retirement-planning/social-security-vs-401k.html
- https://www.prudential.com/financial-education/4-percent-rule-retirement
- https://www.forbes.com/advisor/retirement/social-security-5-year-rule/
- https://finance.yahoo.com/news/long-400k-last-retirement-140004125.html
- https://finance.yahoo.com/news/retirement-income-count-income-social-145906307.html
- https://secure.ssa.gov/poms.nsf/lnx/0601101010
- https://finance.yahoo.com/news/10-best-cities-retire-10-130028038.html
- https://silvertaxgroup.com/underreported-income-irs/
- https://www.ssa.gov/thirdparty/groups/atp.html
- https://www.bankrate.com/retirement/average-monthly-social-security-check/
- https://www.nerdwallet.com/article/investing/the-average-retirement-savings-by-age-and-why-you-need-more
- https://www.irs.gov/taxtopics/tc410
- https://www.investopedia.com/terms/u/unearnedincome.asp
- https://smartasset.com/retirement/do-seniors-ever-stop-filing-taxes
- https://www.quora.com/Is-7000-monthly-a-decent-retirement-for-a-couple-with-no-debt
- https://www.covisum.com/knowledge-base/earnings-test-explained
- https://www.irs.gov/government-entities/indian-tribal-governments/itg-faq-2-answer-what-income-is-considered-earned-income
- https://money.usnews.com/money/retirement/articles/the-maximum-social-security-benefit
- https://www.usatoday.com/money/blueprint/retirement/what-is-the-401-k-withdrawal-age/
- https://faq.ssa.gov/en-us/Topic/article/KA-01939
- https://www.investopedia.com/ask/answers/110915/are-401k-withdrawals-considered-income.asp
- https://www.fool.com/research/average-retirement-income/
- https://turbotax.intuit.com/tax-tips/irs-tax-return/who-is-exempt-from-paying-social-security-tax/L3dLJUbLN
- https://money.usnews.com/money/retirement/401ks/articles/how-to-take-401-k-hardship-withdrawals
- https://www.valuepenguin.com/medicare-income-limits
- https://time.com/personal-finance/article/how-to-plan-for-retirement/
- https://www.irs.gov/retirement-plans/401k-plan-hardship-distributions-consider-the-consequences
- https://www.mosercpas.com/Avoiding%20an%20IRS%20Tax%20Audit.php
- https://www.usa.gov/what-is-social-security
- https://www.ssa.gov/benefits/retirement/planner/annuities.html
- https://smartasset.com/retirement/does-retirement-income-count-as-income-for-social-security
- https://turbotax.intuit.com/tax-tips/retirement/when-does-a-senior-citizen-on-social-security-stop-filing-taxes/L53Hx1v9W
- https://www.bankrate.com/retirement/social-security-earnings-test/
- https://apps.irs.gov/app/vita/content/globalmedia/teacher/11_retincome_lesplan.pdf
- https://canvasannuity.com/blog/average-retirement-income-for-married-couples
- https://www.irs.gov/newsroom/what-if-i-withdraw-money-from-my-ira
- https://www.investopedia.com/ask/answers/081915/how-social-security-tax-calculated.asp
- https://www.fool.com/retirement/how-much-do-i-need/
- https://www.healthinsurance.org/faqs/is-social-security-considered-income-when-im-enrolling-in-a-plan-through-the-exchange/
- https://www.bamboohr.com/resources/hr-glossary/social-security-wages
- https://www.irs.gov/pub/irs-pdf/p5137.pdf
- https://www.irs.gov/taxtopics/tc427
- https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals
- https://www.investopedia.com/retirement/relief-401k-hardship-withdrawals/
- https://www.investopedia.com/articles/personal-finance/103015/can-your-401k-impact-your-social-security-benefits.asp
- https://turbotax.intuit.com/tax-tips/irs-tax-return/taxable-income-vs-nontaxable-income-what-you-should-know/L0h4j5DZQ
- https://www.businessinsider.com/personal-finance/401k-hardship-withdrawal
- https://www.wsj.com/buyside/personal-finance/how-much-do-i-need-to-retire-f3275fa7
- https://www.forbes.com/sites/tomhager/2023/12/08/social-security--beware-the-annual-earnings-limitation/
- https://faq.ssa.gov/en-us/Topic/article/KA-01921
- https://www.financestrategists.com/tax/tax-planning/capital-gains/impact-of-capital-gains-and-social-security/
- https://www.hrblock.com/tax-center/income/retirement-income/taxes-on-401k-distribution/
- https://www.ssa.gov/benefits/medicare/medicare-premiums.html
- https://smartasset.com/retirement/401k-tax
- https://www.ssa.gov/pubs/EN-05-10069.pdf
- https://www.ssa.gov/ssi/text-income-ussi.htm
- https://www.irs.gov/faqs/social-security-income
- https://answerconnect.cch.com/topic/568715347c6b1000adab90b11c2ac4f104/gross-income-exclusions
- https://www.nerdwallet.com/article/investing/early-withdrawals-401ks
- https://www.ssa.gov/pubs/EN-05-10507.pdf
- https://www.ftb.ca.gov/about-ftb/newsroom/caleitc/eligibility-and-credit-information.html
- https://www.empower.com/the-currency/life/is-social-security-income-taxable
- https://apps.irs.gov/app/IPAR/resources/help/eihave.html
- https://finance.yahoo.com/news/housing-market-2023-happens-sell-183403809.html
- https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-401k-plan-overview
- https://www.irs.gov/pub/irs-news/at-01-08.pdf
- https://www.usatoday.com/money/blueprint/retirement/types-of-americans-who-are-not-eligible-for-social-security/
- https://www.aarp.org/retirement/planning-for-retirement/info-2020/how-much-money-do-you-need-to-retire.html
- https://totalrewards.memphistn.gov/wp-content/uploads/2022/07/457-Hardship-Forms-and-Explanation-of-Hardship.pdf
- https://www.ssa.gov/oact/cola/incomexcluded.html
- https://www.investopedia.com/articles/personal-finance/062615/10-little-known-ways-reduce-your-401k-taxes.asp
- https://smartasset.com/retirement/is-social-security-taxed-after-age-70
- https://www.ssa.gov/OP_Home/cfr20/416/416-1103.htm
- https://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p29.html
- https://www.ssa.gov/OP_Home/cfr20/416/416-1212.htm
- https://www.nasdaq.com/articles/social-security:-is-the-$16728-yearly-bonus-real
- https://www.schwab.com/learn/story/social-security-is-taxable-how-to-minimize-taxes
- https://www.ssa.gov/OP_Home/rulings/oasi/29/SSR67-52-oasi-29.html
- https://www.iowalegalaid.org/resource/my-only-income-is-social-security-do-i-have-to-pay-any-taxes-on-my-benefits
- https://www.fool.com/retirement/plans/ira/do-distributions-count-as-income-for-social-security/
- https://www.ssa.gov/retirement/eligibility
- https://www.forbes.com/sites/stevevernon/2024/02/01/life-expectancy-after-retirementheres-what-to-expect/
- https://www.ssa.gov/benefits/retirement/planner/whileworking.html
- https://www.wsj.com/personal-finance/retirement-only-social-security-benefits-america-a3a706e0
- https://www.investopedia.com/articles/personal-finance/051614/when-401k-hardship-withdrawal-makes-sense.asp