Social Security tax withholding question - 401k contributions while collecting early SS benefits
I'm planning to take my SS retirement benefits starting next January (about 11 months before my Full Retirement Age). I know about the earnings limit and plan to work minimal hours to avoid benefit reductions. My question is about FICA taxes - if I direct 100% of my earnings into my company's 401k until I fully retire, will Social Security taxes still be taken out of my paycheck? I'm wondering if contributing everything to my 401k might help me stay under the earnings limit or if FICA is calculated differently than income tax. Anyone dealt with this situation before?
16 comments
Join the conversation
GalaxyGuardian
Sorry 2 say but putting money in 401k doesnt help with SS earnings test. FICA taxes are taken BEFORE any 401k contributions. So yes youll still have SS+Medicare taxes taken out AND the earnings count toward limit. My brother tried this last yr and got a surprise when they started taking back benefits.
0 coins
Mateo Rodriguez
•Oh no, that's not what I wanted to hear! So even if I put everything into my 401k, the full amount still counts toward the earnings limit? That messes up my whole planning strategy.
0 coins
Aisha Abdullah
The previous commenter is correct. FICA taxes (which include both Social Security and Medicare) are calculated based on your gross wages before any deductions, including 401(k) contributions. For 2025, if you're collecting Social Security before FRA, the earnings limit is projected to be around $22,320 (annual) or $1,860 monthly. Exceeding this means $1 in benefits withheld for every $2 earned above the limit. Also important: the earnings test only counts wages or self-employment income. It doesn't include investments, interest, pensions, annuities, or capital gains. If you're trying to maximize income while collecting early SS benefits, those alternative income sources won't trigger benefit reductions.
0 coins
Ethan Wilson
•I think ur forgetting about the special rule for first year of retirement. OP can make UNLIMITED money until the month they start collecting if they start mid year. Then just monthly limit after that. Would help if starting mid-year rather than January I guess...
0 coins
Aisha Abdullah
•You're absolutely right about the first-year rule - thank you for that correction. If someone starts benefits mid-year, SSA uses a monthly test rather than annual test for that first calendar year. However, since the original poster mentioned starting in January, they would be subject to the annual limit for the entire year unless they have a complete cessation of work for one or more months.
0 coins
Mateo Rodriguez
Thanks for the information! I guess I need to recalculate my hours. Does anyone know if non-cash benefits from work (like health insurance) count toward the earnings limit? Or just the actual wages?
0 coins
Yuki Tanaka
•Non-cash benefits like employer-provided health insurance, life insurance, or retirement plan contributions made by your employer don't count toward the earnings limit. Only your actual wages and/or net earnings from self-employment count. However, if you have taxable fringe benefits that appear as income on your W-2 (like the taxable portion of group term life insurance over $50,000), those would count toward the earnings limit. When calculating how many hours you can work, make sure to factor in any bonuses, commissions, vacation pay, sick pay, and other special payments you might receive during the year, as these all count toward the limit.
0 coins
Carmen Diaz
I tried calling SSA about this EXACT question last month and sat on hold for 2 hours before getting disconnected!!! SO FRUSTRATING!!! I tried three more times and never got through to anyone. The local office said I need to talk to the main number for this question. Going in circles!!
0 coins
Andre Laurent
•I feel your pain! After weeks of trying to reach someone at SSA about my retirement application questions, I finally tried using Claimyr.com - it got me through to a real SSA agent in about 15 minutes. They have this automated system that waits on hold for you and calls when an agent picks up. Saved me hours of frustration. You can see how it works in their video demo: https://youtu.be/Z-BRbJw3puU
0 coins
AstroAce
im in this EXACT situation right now. started benefits 9 months before FRA and working part-time. even with 401k contributions my earnings still count toward the limit and yes FICA still comes out. but heres something my accountant told me - if you go over the limit its not the end of the world. they dont take EVERYTHING back. just $1 for every $2 over the limit. and they usually adjust it the following year, not immediately. so if careful budgeting is important factor that in.
0 coins
Ethan Wilson
•smart advice here. a lot of ppl think going $1 over means losing all benefits but its actually pretty proportional. just make sure u KNOW ur going over and budget for it. the real nightmare is unexpected adjustments.
0 coins
Zoe Kyriakidou
Everyone is focusing on the FICA taxes but missing an important point - if you're only working minimal hours just to stay under the earnings limit, is it really worth it? Have you calculated how your benefit amount will permanently increase if you wait until FRA? For many people, working part-time at reduced hours AND taking reduced SS benefits just isn't mathematically optimal. I'd suggest running calculations both ways - working minimal hours with early SS versus working your preferred hours and waiting for FRA.
0 coins
Mateo Rodriguez
•That's actually a really good point. I'm working reduced hours for other reasons too (some health issues), so full-time work isn't really an option for me right now. But I should definitely run the numbers again to make sure this approach makes sense financially.
0 coins
GalaxyGuardian
my sister found a loophole! she started a small business and pays herself as a consultant AFTER she hits full retirement age so she doesnt have to deal with any of this. not sayin its for everyone but thought id mention...
0 coins
Aisha Abdullah
•Just a clarification - that's not actually a loophole. Once someone reaches Full Retirement Age, the earnings test no longer applies regardless of employment type. They can earn unlimited income without reduction in benefits. Self-employment income is still subject to FICA taxes (though paid through self-employment tax), and the earnings test would still apply to self-employment income before FRA. The strategy you mentioned only works because she waited until FRA, not because of how she structured her income.
0 coins
Jamal Brown
When my husband retired we went through the EXACT same thing! We thought we were being so clever with the 401k idea but NOPE! Social Security taxes still came out and the earnings still counted for the limit. He ended up just fully retiring 6 months earlier than planned because the math worked out better that way. Sometimes simple is better.
0 coins