Are you afraid that taking money out of your 401(k) will lower your Social Security checks? I have good news for you! Taking money out of your 401(k) won’t directly lower your monthly Social Security benefit amount, but there is a catch you need to know about for taxes
Over the years I’ve spent helping people figure out their retirement options, this is one of the questions I get asked the most. Let’s break it down so you can understand how to handle your retirement money well.
The Quick Answer: It’s Complicated (But Not How You Think)
Withdrawals from your 401(k) don’t lower your Social Security checks, but they can change how much of your Social Security is taxed. That’s the key distinction many people miss!.
Here’s what you really need to know:
- 401(k) withdrawals don’t affect your monthly Social Security payment amount
- But those withdrawals might cause your Social Security benefits to become taxable
- Different rules apply for regular retirement benefits vs. SSI or SSDI programs
How Social Security Benefits Are Calculated
What are Social Security retirement benefits? Let’s learn about that first before we go any further.
Your Social Security retirement benefit is based on your highest 35 years of earnings where you paid Social Security taxes. The Social Security Administration (SSA) uses this work history to calculate your benefit amount – not your retirement account balances or withdrawals.
For 2025, if you’re under full retirement age (FRA) for the entire year, you might face the “earnings test” where benefits are reduced by $1 for every $2 you earn above $23,400. But – and this is crucial – this test ONLY applies to earned income like wages or self-employment earnings, not retirement account withdrawals.
Types of Income: Why the Distinction Matters
When it comes to Social Security, not all income is created equal. The SSA treats different types of income differently:
- Earned Income: Wages, salaries, bonuses, commissions, and self-employment earnings
- Unearned Income: Investment returns, pension payments, and retirement account withdrawals
Your 401(k) distributions fall into the second category – unearned income. This means they don’t trigger the Social Security earnings test that could reduce your benefits if you claim before reaching full retirement age.
The Real Impact: Taxation of Your Benefits
While your 401(k) withdrawals won’t reduce your benefit amount, they can increase the amount of your Social Security that gets taxed. Here’s how it works:
The IRS uses something called “combined income” to determine if your Social Security benefits are taxable. This combined income equals:
Your Adjusted Gross Income + Nontaxable Interest + 1/2 of Your Social Security Benefits
Traditional 401(k) withdrawals are included in your AGI, which can push your combined income over certain thresholds.
Tax Thresholds for Social Security Benefits
For individual tax filers:
- Combined income between $25,000 and $34,000: Up to 50% of benefits may be taxable
- Combined income above $34,000: Up to 85% of benefits may be taxable
For joint filers:
- Combined income between $32,000 and $44,000: Up to 50% of benefits may be taxable
- Combined income above $44,000: Up to 85% of benefits may be taxable
Let me give you a real-world example. Say you’re married filing jointly and receive $24,000 in Social Security benefits. If you had no other income, none of your benefits would be taxable. But if you withdraw $38,000 from your traditional 401(k), your combined income becomes $50,000 ($38,000 + half of $24,000), potentially making up to 85% of your Social Security benefits subject to tax.
Different Rules for Different Programs: SSI and SSDI
The rules we’ve discussed apply to regular Social Security retirement benefits. But if you’re receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), different considerations apply.
Supplemental Security Income (SSI)
For SSI, both income AND assets matter. To qualify for SSI:
- An individual’s countable resources cannot exceed $2,000
- For couples, the limit is $3,000
A 401(k) account is considered a “countable resource” and could make you ineligible for SSI if it exceeds these thresholds. Additionally, any withdrawal from a 401(k) counts as unearned income in the month received, reducing your SSI payment almost dollar-for-dollar after a small exclusion.
Social Security Disability Insurance (SSDI)
For SSDI, eligibility depends on your inability to engage in “Substantial Gainful Activity” (SGA). In 2025, the SGA limit for non-blind individuals is $1,620 per month.
Like the retirement earnings test, SGA only looks at earned income from work, not 401(k) withdrawals. So taking money from your 401(k) won’t affect your SSDI eligibility or benefit amount directly. However, it can still cause your SSDI benefits to become taxable under the same rules we discussed earlier.
Smart Strategies to Reduce the Tax Impact
Now for the good part – how to potentially reduce the tax bite on your Social Security benefits! Here are two powerful strategies to consider:
1. Consider Roth Conversions
Converting some traditional IRA or 401(k) money to a Roth account could be a game-changer. Why? Because qualified Roth withdrawals are completely tax-free and don’t count toward the combined income calculation that determines whether your Social Security benefits are taxable.
“A Roth IRA or Roth 401(k) can help you save on taxes in retirement,” says Bradley Koval, director at Fidelity’s Financial Solutions. “Not only are withdrawals potentially tax-free, they won’t impact the taxation of your Social Security benefit. This is an important aspect of a Roth account that most people are not aware of.”
Remember though – you’ll pay taxes on the conversion amount in the year you convert. It’s usually best to convert smaller amounts over several years to manage the tax hit.
2. Delay Claiming Social Security
Another effective strategy is postponing when you first take Social Security. For every year you delay taking Social Security past your full retirement age, you get up to an 8% increase in your annual benefit, up until age 70.
Let’s look at a hypothetical couple, Natalie and Juan. If they delay claiming Social Security until age 70 (instead of 65), the percentage of their Social Security income that gets taxed drops from 85% to just 44%. That’s a huge difference! In their case, they’d pay approximately 51% less in taxes while maintaining the same overall retirement income.
Practical Example: See the Numbers in Action
Here’s how these strategies might play out with real numbers:
| Strategy | Retirement Income | Tax Impact |
|---|---|---|
| Claim Social Security at 65; withdraw more from 401(k) | $70,000 total income ($24,000 SS + $46,000 401(k)) | 85% of SS benefits taxable; higher overall tax bill |
| Delay Social Security until 70; withdraw less from 401(k) | Same $70,000 total income ($34,338 SS + $35,662 401(k)) | Only 44% of SS benefits taxable; lower overall tax bill |
Bottom Line: Plan Strategically for Retirement
Your 401(k) withdrawals won’t reduce your Social Security benefits, but they can definitely impact your tax situation. With careful planning, you can minimize the tax burden and maximize your retirement income.
Here are my key takeaways:
- The more money coming from your traditional pre-tax 401(k) or IRA, the more tax you’ll likely pay
- The greater percentage of your retirement income coming from Social Security, the less tax you’ll likely pay
- Consider increasing contributions to Roth accounts before retirement
- Think about delaying Social Security to age 70 if possible
- Work with a financial advisor to create a withdrawal strategy that minimizes taxes
Remember, Social Security is one of the only inflation-protected sources of lifetime income for many retirees. Understanding how it interacts with your other retirement income sources is crucial for maximizing your financial security.
Have you started thinking about your withdrawal strategy yet? What questions do you still have about managing your 401(k) and Social Security? I’d love to hear from you in the comments!
This article contains general information only and should not be considered tax or financial advice. Please consult with a qualified professional about your specific situation.
Safe harbor 401(k) plan
A safe harbor 401(k) plan is similar to a traditional 401(k) plan, but, among other things, it must provide for employer contributions that are fully vested when made. These contributions may be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals. The safe harbor 401(k) plan doesn’t have to go through the tough annual nondiscrimination tests that regular 401(k) plans do.
Employers sponsoring safe harbor 401(k) plans must satisfy certain employee notice requirements. The notice requirements are satisfied if the employer provides each eligible employee with written notice of the employees rights and obligations under the plan and the notice satisfies content and timing requirements.
In order to satisfy the content requirement, the notice must describe the safe harbor method used, how eligible employees make elections, any other plans involved, etc.
The timing requirement requires that the employer must provide notice within a reasonable period before each plan year. It meets this requirement if the notice is given to every eligible worker at least 30 days and no more than 90 days before the start of each plan year. There are special rules for employees who become eligible after the 90th day.
Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.
Small businesses needed a way to give their employees retirement benefits that wouldn’t cost a lot of money, so the SIMPLE 401(k) plan was made. A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests that apply to traditional 401(k) plans. As with a safe harbor 401(k) plan, the employer is required to make employer contributions that are fully vested. This type of 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year. Employees who are eligible to participate in a SIMPLE 401(k) plan may not receive any contributions or benefit accruals under any other plans of the employer.
For more information on traditional, safe harbor and SIMPLE 401(k) plans, see Publication 4222, 401(k) Plans for Small Businesses PDF.
Restriction on conditions of participation
Any 401(k) plan cannot require, as a condition of participation, that an employee complete more than 1 year of service.
Do 401K Withdrawals Count As Income Against Social Security? – SecurityFirstCorp.com
FAQ
What is one of the biggest mistakes people make regarding Social Security?
4 Social Security Mistakes That Could Derail Your RetirementNot knowing your Full Retirement Age (FRA) . Filing for benefits too early. Ignoring life expectancy in your decision. Overlooking the rules and flexibility of Social Security.
What type of income reduces social security benefits?
When you claim your Social Security benefits before you reach full retirement age (FRA), wages, bonuses, commissions, vacation pay, and net earnings from self-employment can be taken away.
Does a 401k count as income when retired?
No, a 401(k) is a retirement savings plan, not an income itself, but the money you withdraw from it in retirement is considered income.
How much will my Social Security be reduced if I have a 401k?
If you get money from a 401(k), it won’t change how much Social Security you get, but it could raise your annual income enough to tax those benefits.
Do 401(k) withdrawals count as “earnings” to Social Security?
Do 401 (k) Withdrawals Count as “Earnings” to Social Security? Anyone who claims their Social Security before reaching full retirement age is subject to Social Security’s so-called “earnings test” which limits how much you can earn before they take back some of your benefits.
Does 401k affect social security?
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 they will be taxed or taxed at a higher rate. Is 401k considered income for Social Security? 401k Income.
Do 401(k) and Ira distributions count toward social security earnings limit?
Do 401 (k) and IRA distributions count toward the Social Security earnings limit? No. “Earned income” for Social Security means wages from a job or net earnings from self-employment. Earned income is the only thing that Social Security looks at when deciding if and how much to take out of your benefits.
Do 401k withdrawals count as income?
Unearned income like 401k withdrawals, pension payments, investment income, interest, and dividends don’t count toward the earnings limit. However, your 401k withdrawals will still count as income for determining whether your Social Security benefits are taxable.
Does 401(k) money count as earned income on social security?
While 401 (k) money is not usually counted as earned income on Social Security, it affects the taxes you pay. Your Social Security income could, therefore, be less than you anticipated if your other retirement income amounts are high.
Are 401(k) benefits taxable?
Since the 401 (k) holds tax-deferred money, you will need to pay taxes during withdrawal. Social Security benefits are also taxable. But the taxable portion varies depending on your total retirement income.