The income you receive from your 401(k) or other qualified retirement plan doesn’t affect the amount of the 澳洲幸运5官方开奖结果体彩网:Social Security retirement benefit you receive each month, but does affect whether your benefits are taxable. Certain thresholds determine if your income, includin♌g your 401(k) distributions, is t🐼axable.

Social Security vs. 401(k) Income

Social Security benefits are determined by the amount of money earned during an individual’s working years and paid 澳洲幸运5官方开奖结果体彩网:Social Security taxes. Social Security taxes the full amount of your compensation in the year you earned it up to a predetermined annual limit established by the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS). For 2024, it’s $168,600.

401(k) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a 澳洲幸运5官方开奖结果体彩网:Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement.

The Tax Impact of 401(k) Savings

Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount. Taxes are not levied on individuals whose total income is less than $25,000 or $32,000 if filing jointly with a spouse.

You may be required to pay taxes on up to 50% of your benefits if your income is between $25,000 and $34,000 or between $32,000 and $44,000 if filing jointly. Up to 85% of your benefits may be taxable if you’re single and earn more than $34,000 or married earning more than $44,000. According to the Social Security Administration (SSA), combined income equals the sum of:

• 澳洲幸运5官方开奖结果体彩网:Adjusted gross income (AGI), which includes earned wages and withdrawals from any retirement savings accounts, like 澳洲幸运5官方开奖🀅结果体彩网:individual retirement accounts (IRAs) and 401(k)s
• Any nontaxable interest
• One-half of your Social Security benefits

Determining Social Security Benefits

The SSA calculates an average monthly benefit amount based on your average income and the years you’re expected to live. You can begin receiving Social Security benefits as early as age 62, but the benefit amount is reduced for each month you collect before you reach your 澳洲幸运5官方开奖结果体彩网:full retirement age.

The full retirement age is 66 if you were born between 1943 and 1954. It increases from age 66 by two months each year until age 67 if you were born between 1955 and 1960. The full retirement age is 67 if you were born in 1960 or later.

In 2024, the maximum monthly benefit at full retirement age is $3,822. Those who wait until age 70 can collect a benefit of up to $4,873.

Other Retirement Income

Other types of retirement income can affect your benefit amount even if you collect benefits on your spouse’s account. Your benefits may be reduced due to income you receive from a government pension or another job for which your earnings weren’t subject to Social Security taxes. This rule primarily affects people working in state or local government positions, the federal civil service, or those employed with a foreign company.

Social Security benefits will be reduced by two-thirds of a pension from a government position not subject to Social Security taxes. This rule is referred to as the Government Pension Offset. For example, for those eligible to receive $1,200 in Social Security but who receive $900 from a government pension, benefits will be reduced by $600 (2/3 × $900). Your total monthly income of $2,100 ($1,200 + $900) would drop to $1,500 ($600 + $900).

This Windfall Elimination Provision (WEP) reduces the unfair advantage given to those who receive benefits on their account and receive income from a pension based on earnings for which they did not pay Social Security taxes. The WEP reduces Social Security benefits by a certain factor in these cases, depending on the age and birth date of the applicant. But it doesn’t apply if you also have 30 or more years of earnings on which you did pay Social Security taxes.

The Bottom Line

Income from a 401(k) doesn’t affect the amount of your Social Security benefits, but it can boost your annual income to a point where those benefits will be taxed. This can be tricky for someone required to withdraw from their 401(k) and collect Social Security. Individuals and couples must 澳洲幸运5官方开奖结果体彩网:factor in tax liabilities wh🌠en planning for retirement or deciding how larg🦹e of a 401(k) distribution they should take.