Social Security earnings limit confusion - do 401k withdrawals and pension count toward the cap?

The good news is that neither your pension nor your 401k withdrawals count toward the Social Security earnings limit! The limit only applies to wages from employment or net earnings from self-employment. So you can receive your pension and take 401k distributions without worrying about hitting the earnings test limit. However, for taxation purposes, it's a different story. Both pension and 401k withdrawals, along with your Social Security benefits, can contribute to making your Social Security benefits taxable. The IRS uses a calculation called "combined income" (adjusted gross income + nontaxable interest + 1/2 of Social Security benefits) to determine if your benefits are taxable.

I went through this EXACT same confusion last year! I was so worried my IRA withdrawals would count against the earnings limit that I actually held off taking money out until I talked to SSA. What a relief when I found out passive income doesn't count! One thing though - be REALLY careful about the tax situation. I got hit with a surprise tax bill because I didn't realize how my combined income would affect the taxation of my SS benefits. About 85% of my benefits ended up being taxable.

The only income that counts toward the earnings limit is EARNED income - meaning income from actually working (wages or self-employment earnings). Passive income like pensions, 401(k) distributions, IRA withdrawals, investment income, rental income, etc. don't count against the earnings test. However, for tax purposes, your 401(k) withdrawals are taxed as ordinary income, and your total income (including pension and potentially part of your Social Security) will determine your tax bracket. So yes, your 401(k) withdrawals are taxed based on your total annual income.

Just want to add a little more clarity on the taxation part since others covered the earnings limit well. For your Social Security benefits, taxation works on a tiered system: - If your combined income is under $25,000 (single) or $32,000 (married filing jointly), your SS benefits aren't taxable - If your combined income is $25,000-$34,000 (single) or $32,000-$44,000 (married), up to 50% of benefits may be taxable - Above those thresholds, up to 85% of benefits may be taxable So your 401k withdrawals and pension don't affect the earnings test, but they do affect how much of your SS benefits get taxed.

Everyone here is WRONG!! When I took money from my 401k last year SSA reduced my check the very next month! I had to fight with them for 3 months to get it fixed and they said it was a "system error" but I don't believe them. They're always looking for ways to reduce our benefits that we EARNED!!

The earnings test is only about WORK income. Tryied to call SSA about this exact question last month and spent 3 hours on hold before getting disconnected. Finally got through the next day and they confirmed pension and 401k don't count for earnings test, only for taxes.

i think lot of people get confused on this. my brother thought his rental properties would count for the earnings thing but they don't. only if u actually work somewhere and get a w2 or have a business with schedule c income. pensions & 401ks are passive so ur good!

Just a heads up - once you reach your Full Retirement Age (FRA), the earnings limit goes away completely! You can earn as much as you want from work without any reduction in benefits. So if you're turning 66 and 6 months soon (assuming that's your FRA), this will all be a moot point after that.

My situation is different but related... I'm on SSDI and turning 62 soon. Will my SSDI automatically convert to retirement benefits? And will the earnings limit suddenly apply to me? I've been able to do some permitted work under SSDI rules but confused about what happens at retirement age.