Do 401k withdrawals count as income for Social Security?
But withdrawals from an IRA or 401(k) aren't the same as wages from a job. So distributions taken from a retirement plan won't cause your Social Security benefits to shrink or be withheld. However, that doesn't mean your retirement plan withdrawals won't affect your Social Security benefits at all.
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.
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.
When it comes to IRA distributions, here's how it works: Roth IRA distributions are not included in your combined income, so they have no impact on whether your Social Security is taxable. However, traditional IRA distributions are generally included in your AGI, so they're included in combined income.
Earned income consists of the following types of payments: (a) Wages —(1) Wages paid in cash—general. Wages are what you receive (before any deductions) for working as someone else's employee. Wages are the same for SSI purposes as for the social security retirement program's earnings test.
For the earnings limits, we don't count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains. However, we do count an employee's contribution to a pension or retirement plan if the contribution amount is included in the employee's gross wages.
Withdrawals are taxed as ordinary income. They also may incur penalty taxes if you don't make withdrawals on time.
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.
A 401(k) withdrawal does not directly affect your Social Security disability benefits because 401k withdrawals are not “earned income” for Social Security purposes. 401(k) withdrawals reflect income from work performed in the past, over the years of a worker's life of earning and saving.
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.
What is not counted as income?
Nontaxable income won't be taxed, whether or not you enter it on your tax return. The following items are deemed nontaxable by the IRS: Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer.
Earned income also includes net earnings from self-employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.
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.
Earned income is wages, salaries, tips, and other employee compensation that is subject to California withholding, or net income from self-employment.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.
Not working long enough is the most obvious reason someone wouldn't be eligible for Social Security retirement benefits. You must have a work history of at least 10 years to earn the credits you need to be eligible for Social Security as a retiree.
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.
Your withdrawals won't shrink your benefits
But withdrawals from an IRA or 401(k) aren't the same as wages from a job. So distributions taken from a retirement plan won't cause your Social Security benefits to shrink or be withheld.
Regardless of your age, you will need to file a Form 1040 and show the amount of the IRA withdrawal. Since you took the withdrawal before you reached age 59 1/2, unless you met one of the exceptions, you will need to pay an additional 10% tax on early distributions on your Form 1040.
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.
Do I need to report anything from my 401k?
In general, 401(k) contributions are not considered taxable income. This means you don't need to report 401(k) on your tax return. However, there are exceptions to this rule. If you take any distributions from your 401(k), you are legally required to report that on your tax return.
