The income you receive from your 401(k) or other qualified retirement plan doesn’t affect the amount of the Social Security retirement benefit you receive each month, but does affect whether your benefits are taxable. Certain thresholds determine if your income, including your 401(k) distributions, is taxable.
The Short Answer: Yes, But There Are Rules
Hello! I’ve been studying ways to retire for years, and this question comes up ALL THE TIME when I talk to people. The good news is that you can fully collect Social Security retirement benefits along with taking money out of your 401(k). This is exactly what a lot of retirees do to make their income more stable.
But (and there’s always a but), there are some important rules and considerations that might affect your benefits and taxes. Let’s dive into the details so you can make the most of both income sources.
How Working Affects Your Social Security Benefits
If you’re still working while collecting Social Security, your age makes a big difference:
If You’re Under Full Retirement Age (FRA)
According to the Social Security Administration, if you’re younger than your full retirement age and earn more than the yearly earnings limit, your benefits will be reduced. For 2025, the earnings limit is $23,400. For every $2 you earn above this limit, $1 will be deducted from your benefits.
In the Year You Reach FRA
In the year you reach full retirement age, a different limit applies. For 2025, the limit is $62,160 for the months before you reach FRA. Only $1 in benefits is deducted for every $3 you earn above this limit.
After Reaching FRA
When you reach full retirement age, you can work as much as you want and still get the same amount of Social Security. This is when a lot of people decide to make the most of both sources of income.
The SSA makes it clear: “No matter how much you earn, we will not cut your benefits after the month you reach full retirement age.” “.
401(k) Distributions and Social Security
One of the most common misunderstandings I see with clients is thinking that 401(k) withdrawals will reduce Social Security benefits They don’t! Here’s what you need to know
- Your 401(k) distributions do NOT count as “earnings” for the Social Security earnings test
- The SSA only counts wages from employment or net earnings from self-employment
- Pensions, annuities, investment income, interest, and 401(k) withdrawals are NOT counted
This means you can take out as much money as you want from your 401(k) without having your benefits cut.
The Tax Implications You Can’t Ignore
While your 401(k) withdrawals don’t reduce your Social Security benefits, they CAN affect how much of your Social Security is taxed. This is where things get a bit complicated.
The IRS uses a formula based on your “combined income” to determine if your Social Security benefits are taxable. Your combined income equals:
- Your Adjusted Gross Income (AGI)
- Plus nontaxable interest
- Plus 50% of your Social Security benefits
Depending on your combined income, up to 85% of your Social Security benefits could be subject to federal income tax.
Individual Tax Thresholds (2025)
| Combined Income | Percentage of Benefits Taxable |
|---|---|
| Below $25,000 | 0% (not taxable) |
| $25,000 – $34,000 | Up to 50% may be taxable |
| Above $34,000 | Up to 85% may be taxable |
Married Couples Filing Jointly (2025)
| Combined Income | Percentage of Benefits Taxable |
|---|---|
| Below $32,000 | 0% (not taxable) |
| $32,000 – $44,000 | Up to 50% may be taxable |
| Above $44,000 | Up to 85% may be taxable |
Can You Contribute to a 401(k) While Collecting Social Security?
Yes! If you’re still working and your employer offers a 401(k), you can contribute to it while receiving Social Security benefits. This is actually a smart strategy for many people.
Making pre-tax 401(k) contributions can lower your Adjusted Gross Income (AGI), which might help reduce the taxation of your Social Security benefits. However, these contributions won’t reduce your income for the Social Security earnings test.
As AccountingInsights explains: “While your 401(k) contributions reduce your taxable income for the IRS, they do not reduce the income counted by the SSA.”
Required Minimum Distributions (RMDs) and Social Security
Once you reach age 73 (as of 2025), you’ll generally need to start taking Required Minimum Distributions (RMDs) from your 401(k). This is true even if you’re also collecting Social Security.
There is one exception: If you’re still working for the company that sponsors your 401(k) plan, you might be able to delay RMDs from that specific plan until you retire, as long as you don’t own more than 5% of the company.
But remember, this “still working” exception doesn’t apply to IRAs or 401(k)s from previous employers. You’ll need to take RMDs from those accounts regardless of your employment status.
Strategic Planning Tips
Based on my experience working with retirees, here are some strategic tips to maximize both income sources:
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Consider delaying Social Security until FRA or even age 70 if you can afford to live off your 401(k) first. Your Social Security benefit increases by approximately 8% per year you delay after FRA up to age 70.
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Use your 401(k) strategically in low-income years to stay under the Social Security tax thresholds when possible.
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If you’re still working, contribute to your 401(k) to reduce your taxable income, which may help keep your Social Security benefits tax-free.
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Track your earnings carefully if you’re under FRA. If you think your earnings will differ from what you originally told the SSA, contact them right away at 1-800-772-1213.
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Consider Roth conversions in lower income years before you start collecting Social Security to reduce future RMDs that could push you into higher tax brackets.
Real-World Example: How This Works
Let me share a quick example from one of my clients (with details changed for privacy):
Mary is 66 (her FRA) and starts collecting $2,000 monthly from Social Security ($24,000/year). She also withdraws $20,000 from her 401(k) annually. Her combined income for tax purposes is:
$20,000 (401(k) distribution/AGI) + $12,000 (50% of SS benefits) = $32,000
Since she’s single and her combined income is between $25,000 and $34,000, up to 50% of her Social Security benefits may be taxable.
Had she withdrawn $30,000 from her 401(k) instead, her combined income would be $42,000, pushing her into the bracket where up to 85% of benefits may be taxable.
Working Outside the United States
If you’re living and working outside the U.S. while collecting Social Security, different rules apply. The Social Security Administration uses a different work test for international residents. You’ll need to contact the Social Security Office of Earnings & International Operations for guidance specific to your country of residence.
What About Government Pensions?
If you receive a pension from a government job where you didn’t pay Social Security taxes, special rules may apply. Your Social Security benefits could be reduced under the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO).
The good news is that the Social Security Fairness Act was signed into law on January 5, 2025. This act eliminates the reduction of Social Security benefits for those entitled to public pensions from work not covered by Social Security. The SSA is currently evaluating how to implement this change.
The Bottom Line
You can absolutely collect Social Security and take distributions from your 401(k) at the same time. Your 401(k) withdrawals won’t reduce your Social Security benefit amount, but they may affect how much of your Social Security is taxable.
The key is to understand how these different income sources interact so you can plan your retirement income strategy to minimize taxes and maximize benefits.
Have you started collecting both yet? I’d love to hear about your experience in the comments below!
FAQs About Collecting Social Security and 401(k) Together
Do I have to take money from my 401(k) when I start Social Security?
No! These are completely separate systems. You can start or delay either one independently based on your needs.
Can I still work, collect Social Security, AND contribute to my 401(k)?
Absolutely! Just be aware of the earnings limits if you’re under your full retirement age.
Will my 401(k) withdrawals count against the Social Security earnings limit?
No. Only earned income (wages or self-employment income) counts toward the earnings limit.
Is it better to take Social Security first or 401(k) first?
It depends on your personal situation, but many financial advisors suggest living off 401(k) funds first and delaying Social Security until age 70 if possible to maximize lifetime benefits.
What happens to my withheld Social Security benefits if I exceed the earnings limit?
They’re not lost forever! Once you reach full retirement age, the SSA recalculates your benefit amount to give you credit for months when benefits were withheld.
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 go down if you get a government pension or work at another job where you didn’t have to pay Social Security taxes on your earnings. The main groups this rule affects are those who work for state or local governments, the federal government, or a foreign company.
Two-thirds of a government pension that isn’t subject to Social Security taxes will be taken away from Social Security benefits. 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.
Are 401(k) Withdrawals Considered Income for Social Security Purposes?
Social Security only considers earned income, such as a salary or wages from a job or self-employment. Withdrawals will be included in income and determine whether your Social Security benefits are taxable and, if so, how much.