Can 401k contributions lower my earnings for Social Security retirement test at age 63?

YES! 401k contributions DO reduce your countable income for the SS earnings test. I did this exact thing last year when I turned 63. You're correct about the limit being around $22,000 (actually $22,320 for 2025). The money that goes into your 401k isn't considered wages for the earnings test. Just make sure you're looking at box 3 on your W-2 (Social Security wages), not your gross income. This is one of the few actual GOOD loopholes in the SS system!

The previous answer is NOT completely accurate. While 401k contributions do reduce your countable earnings for the Social Security earnings test, there are some important details you need to understand. The earnings limit you're referring to is officially called the Retirement Earnings Test (RET), and it's $22,320 in 2025 for people under Full Retirement Age. Here's what you need to know: 1. Pre-tax 401k contributions ARE excluded from countable earnings for the RET 2. SSA looks at your Social Security wages (box 3 on W-2), not your gross income 3. You should still inform SSA of your expected earnings when you apply 4. Self-employment earnings are counted differently than W-2 wages If you're doing consultant work, you need to be careful about how that income is structured (W-2 vs 1099). The calculation gets more complicated with self-employment income.

For self-employment income (1099), you'll need a different approach. With self-employment, Social Security counts your net earnings, not gross income. This means: 1. You can reduce countable income through legitimate business expenses 2. Contributions to a Solo 401k or SEP IRA DO reduce your countable income for the earnings test 3. You'll need to report your expected net earnings to SSA when you apply With $26,000 in consultant income, after you deduct business expenses and then contribute $4,000+ to a Solo 401k, you should be able to stay under the $22,320 limit. Just make sure to keep excellent records as you may need to verify your calculations if SSA questions you.

I've been a tax preparer for 25 years, and I can confirm that 401k contributions (and other pre-tax retirement contributions) DO reduce your countable income for the Social Security earnings test. The confusion happens because people mix up different income definitions: - For INCOME TAX purposes, traditional 401k contributions reduce your taxable income - For SOCIAL SECURITY TAX purposes, you still pay FICA tax on 401k contributions - For the EARNINGS TEST, SSA looks at your Social Security wages (Box 3 on W-2) For self-employment, they look at your net earnings after expenses and after the deduction for self-employment tax. Solo 401k or SEP IRA contributions further reduce this amount. The earnings test uses the amount that would be subject to Social Security tax, BUT contributions to qualified retirement plans reduce this amount for earnings test purposes even though you paid SS tax on them. It's confusing but correct.

Trying to reach SSA to confirm any of this is a nightmare. I spent FOUR HOURS on hold last month trying to ask about my earnings test calculation. Got disconnected twice. When I finally got through, the person gave me a different answer than what I got when I called the week before. So frustrating!

I think you guys are confusing the earnings limit with the contribution limit. 401k contributions still count as WAGES for Social Security purposes! You pay FICA tax on them don't you? So how could they not count towards the earnings test??

My husband tried this last year when he turned 63. He definitely got to keep more of his SS by putting more in his 401k. We checked with our accountant first to make sure. It works!

No, he didn't have to notify them specifically about the 401k contributions. He just reported his expected earnings (after the 401k contributions) when he applied. SSA gets the actual earnings information from his W-2 at the end of the year. The key is making sure you're actually staying under the limit with your reportable earnings.

I'm approaching 63 too and trying to understand the same thing... I've read that if you hit the year of your Full Retirement Age, the earnings limit jumps way up (like $60,000 or something) and they only take $1 for every $3 you earn over that higher limit. And once you actually hit your FRA month, there's no limit at all! The whole system is so complicated!!!

Just make sure ur reporting ur earnings correctly throughout the year. SSA does these 'reconciliations' where they check what u told them against ur actual earnings. I had a friend who got hit with a huge overpayment notice because he didn't report some income and went over the limit. What a mess!!!! Better to tell them about any changes in ur income right away.