Social Security earnings limit confusion - does 401k interest count toward $23,400 limit when working part-time?

Good news! The earnings limit only applies to wages or self-employment income. Your 401k distributions (whether interest, earnings, or principal) do NOT count toward the $23,400 earnings limit. The SSA only cares about actual work income when applying the earnings test. You're correct about the penalty - they withhold $1 in benefits for every $2 you earn above the limit. If you do exceed the limit, SSA typically doesn't spread it out - they'll withhold full monthly payments starting in January of the following year until they've recovered the appropriate amount. One thing to consider - if you'll reach your full retirement age in 2026, the earnings limit is much higher for the months of 2026 before your birthday, and then disappears completely once you hit FRA.

did u call social security to ask them directly? i waited 2 hours on hold last month trying to get a straight answer about my wifes benefits and then got disconnected. TWICE! these gov people dont care about our time

I'm in almost the exact situation as you!! I started drawing my SS at 64 last year and do consulting part time. My financial advisor told me that 401k distributions DON'T count as earnings. Only your W-2 or 1099 income counts towards the earnings test limit. But be careful! Keep track of your consulting income and don't go over. I went over by about $4,000 last year by accident (took on an extra project in December) and they're withholding 2 full months of benefits this year to make up for it. It stinks because they don't just take a little each month - they take FULL months until they recover what you owe.

To answer your follow-up question: Dividends, interest, capital gains, pension payments, annuities, IRA distributions, and 401k withdrawals all DO NOT count toward the earnings limit. It's only earned income (wages or self-employment) that counts. And to clear up some confusion in other comments - no, you don't have to pay back EVERYTHING if you exceed the limit. The reduction is $1 for every $2 you go over. So if you exceed the limit by $5,000, they'd withhold $2,500 in benefits. Also worth noting: If 2025 is the first year you receive benefits, SSA uses a monthly earnings test rather than annual for that first year. So you could earn more than the annual limit before you start collecting and it wouldn't affect your benefits.

Im retired and draw SS and the only thing i know is my 401k money doesnt count for the limit. I withdraw every month and they never took away any SS money. Only when i worked at home depot for a while did i have to watch my income. hope that helps

Not to get off track but since we're talking about retirement income, has anyone had problems with their COLA increase this year? Mine was supposed to be 3.2% but my check only went up by like 2.1% when I calculated it. Been trying to reach someone at SSA for weeks with no luck!

One more thing I forgot to mention - when you do start claiming, make sure you set aside some money for taxes! Depending on your combined income (adjusted gross income + nontaxable interest + half of SS benefits), up to 85% of your benefits could be taxable. Most people don't realize this until tax time and get a nasty surprise. I now have federal taxes withheld directly from my SS payment (you can request this on the SSA website) to avoid a big bill in April.

Let me clear up a few points about the retirement earnings test: 1. For anyone under FRA for the entire year 2025, the limit is $23,400 2. In the year you reach FRA, the limit is $62,640 ONLY for the months BEFORE the month you reach FRA 3. Starting the month you reach FRA, there is NO limit on earnings Regarding withholding: SSA estimates your earnings for the year. If you expect to exceed the limit, they'll withhold benefits proactively. Otherwise, they'll reconcile after the fact when tax data is available, which can result in unexpected overpayments. And yes, absolutely confirmed that 401(k) distributions, regardless of whether they're from interest, earnings, or principal, do NOT count toward the earnings test limit.

Just wanted to add my experience as someone who went through this exact situation two years ago. I filed for SS at 65 while still doing freelance work, and I can confirm that 401k distributions absolutely do NOT count toward the earnings limit - only your actual work income does. One tip I learned the hard way: keep really good records of your consulting income throughout the year. I use a simple spreadsheet to track each payment and running total so I know exactly where I stand. When I got close to the limit in November, I was able to turn down a project to stay under rather than deal with the benefit withholding. Also, don't forget that if you're doing consulting work, you'll likely need to pay quarterly estimated taxes on that income since there's no employer withholding. Something to factor into your planning!

Just wanted to chime in as someone who's been through this exact scenario! I started collecting SS at 65 while doing part-time contract work, and I can absolutely confirm that 401k distributions don't count toward the earnings limit. I take monthly distributions from mine and have never had any issues with SSA. One thing that really helped me was calling SSA early in the year to report my expected earnings from consulting work. They can set up voluntary withholding if you think you might go over the limit, which saves you from the surprise of having full months withheld later. Much better to have them take a little each month than lose 2-3 full payments the following year. Also worth mentioning - make sure you understand the difference between gross and net earnings if you're self-employed. The earnings test uses your net self-employment income (after business expenses), not your gross receipts. So keep track of all your legitimate business expenses!

As someone new to this community, I just wanted to say thank you to everyone for such detailed and helpful responses! I'm not quite at retirement age yet but I'm starting to plan ahead, and this conversation has been incredibly educational. The clarification that 401k distributions don't count toward the earnings limit is huge - I had been assuming all retirement income would count. And the practical tips about tracking consulting income with spreadsheets, setting up voluntary withholding with SSA, and keeping detailed business expense records are exactly the kind of real-world advice you can't find in the official publications. It's also reassuring to see people who have successfully navigated this transition sharing their experiences. The Social Security system can seem so complex and intimidating, but hearing from folks who've actually been through it makes it feel much more manageable. Thanks again to this community for being such a valuable resource!

As someone who just went through this decision process last year, I can confirm what others have said - 401k distributions absolutely do NOT count toward the earnings limit. I was worried about the same thing when I started claiming at 65 while still doing some part-time work. One thing I'd add is to consider the timing of when you start your consulting work. Since you're filing in April 2025, SSA will use the monthly earnings test for the remainder of that year (rather than the annual test). This means you can earn up to $1,950 per month ($23,400/12) from April through December without any penalty. This might actually work in your favor if you're planning to ease into consulting gradually. Also, keep in mind that your reduced benefit at 66 will increase slightly each month until you reach full retirement age due to delayed retirement credits. It's not a huge amount, but every little bit helps! Good luck with your transition - it sounds like you've got a solid plan in place.