Will IRA distributions from divorce settlement count as earned income for Social Security calculations?
I'm trying to understand how my divorce settlement might affect my future Social Security benefits. My divorce was finalized last month and I was awarded 50% of my ex's traditional IRA (about $210,000). I'm 58 now and planning to work part-time until I'm 65, but I have several zero-income years in my earnings record from when I was raising our kids. If I take distributions from this IRA before I retire, would the taxable portion count as "earned income" for Social Security calculations? Could these distributions potentially replace some of my zero years and increase my monthly SS benefit when I claim? I've been reading conflicting information online and the SSA rep I spoke with seemed uncertain. Has anyone dealt with this situation before?
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Amara Nnamani
No, IRA distributions do not count as earned income for Social Security calculations. Only wages from employment or net earnings from self-employment count toward your Social Security earnings record. While IRA distributions are taxable income to the IRS, the Social Security Administration doesn't consider them earned income for benefit calculation purposes.
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Liam Fitzgerald
•That's disappointing but thank you for clarifying. Is there anything I can do to improve my benefits with those zero-income years in my record?
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Giovanni Mancini
I went thru something similar w/ my divorce! Got part of my ex's 401k and thought it would help my ss benefits. Found out it doesn't count AT ALL for social security!!
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Liam Fitzgerald
•That's frustrating to hear. Did you find any other ways to improve your benefits?
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NebulaNinja
To add some detail to what others have said: Social Security benefits are calculated based on your highest 35 years of earnings that had FICA taxes withheld. IRA distributions, even though taxable for income tax purposes, don't have FICA taxes withheld and therefore don't count as earnings for Social Security benefit calculations. Your best option for increasing your future benefit would be to work even part-time to replace those zero years in your earnings record. Even modest earnings will significantly impact your benefit calculation if they're replacing zeros. Alternatively, you might want to look into spousal benefits based on your ex-spouse's record if you were married for at least 10 years. You could potentially claim whichever is higher - your own benefit or up to 50% of your ex's benefit amount.
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Liam Fitzgerald
•Thank you for this detailed explanation. We were married for 22 years, so I should qualify for spousal benefits. Do I need to contact my ex when applying for those, or does SSA handle that directly?
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NebulaNinja
You don't need to contact your ex at all. The SSA will handle everything, and your ex won't even be notified that you're claiming on their record. Since you were married for 22 years, you definitely qualify (the minimum is 10 years). When you apply, you'll need to provide your marriage certificate and divorce decree. SSA will then calculate both your own benefit and the divorced spouse benefit, and you'll receive whichever amount is higher. You can apply as early as 62, but remember that taking benefits before your Full Retirement Age (FRA) will permanently reduce the amount.
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Giovanni Mancini
•Does this work even if the ex already remarried??? My ex got remarried like 2 months after our divorce was final lol
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NebulaNinja
Yes, it absolutely still works even if your ex remarried. Your ability to claim divorced spouse benefits has nothing to do with your ex's current marital status. As long as you were married for at least 10 years and you are currently unmarried, you can claim on their record. Your ex's new spouse can also claim spousal benefits on their record - one doesn't affect the other at all.
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Giovanni Mancini
•OMG thats great news!! Thx so much!!
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Fatima Al-Suwaidi
I SPENT 8 HOURS trying to get through to Social Security last month to ask something similar about my divorce settlement and benefit calculations!!! Kept getting disconnected, put on hold forever, then offices closed. COMPLETE WASTE OF MY DAY!!!! The system is BROKEN!!!!
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Dylan Mitchell
•I had the same frustrating experience trying to reach SSA about my benefits calculation. After multiple failed attempts and hours wasted, I found a service called Claimyr that got me through to a real SSA agent in under 20 minutes. They basically call SSA for you and when they reach an agent, they connect you. Saved me so much time and frustration. Their website is claimyr.com and they have a video showing how it works here: https://youtu.be/Z-BRbJw3puU. It was definitely worth it for me since I needed specific answers about my situation that only an SSA agent could provide.
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Fatima Al-Suwaidi
Did that service actually work? I'm skeptical about anything that claims to get through to SSA quickly...
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Dylan Mitchell
•It really did work for me. I was skeptical too but was desperate after trying for days to get through on my own. They connected me with an agent in about 15 minutes. The rep I spoke with was able to answer all my questions about my divorced spouse benefits and earnings record. I'm not saying it's magic, but it definitely saved me hours of frustration.
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Sofia Morales
One important thing to consider is that while IRA distributions don't count as earned income for Social Security, your part-time work definitely will. Even earning just $15,000-20,000 per year between now and when you claim benefits could significantly increase your monthly Social Security payment if it's replacing zero years in your calculation. I was in a similar situation with several zero years, and working part-time for just 5 years before claiming increased my monthly benefit by about $380. That adds up to over $4,500 per year for the rest of my life! Also, don't forget that if your ex-spouse passes away before you, you may be eligible for survivor benefits which are typically 100% of what they were receiving (rather than the 50% for spousal benefits). This is something many divorced people aren't aware of.
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Liam Fitzgerald
•That's incredibly helpful - thank you! I hadn't thought about the survivor benefits aspect. $380 monthly increase is substantial. I'm definitely going to continue my part-time work now.
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Giovanni Mancini
My neighbor said her financial advisor told her to rollover the IRA to a Roth and then the distributions wouldn't be taxable. Might be something to look into???
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NebulaNinja
•Converting to a Roth IRA is a separate tax planning strategy that doesn't affect Social Security earnings calculations. When you convert a traditional IRA to a Roth, you pay income tax on the converted amount in the year of conversion. Future distributions from the Roth are indeed tax-free, but they still don't count as earned income for Social Security purposes. While this might be a good overall financial strategy for some people, it won't help with the original question about improving Social Security benefits by replacing zero years in the earnings record.
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Dmitry Popov
My cousin works for SSA and she told me that only income that had FICA taxes taken out counts for SS benefits calculation. So jobs where you got a W2 and paid into the system. She said distributions from retirement accounts DEFINITELY don't count toward your SS benefit calculation no matter how they're taxed.
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Liam Fitzgerald
Thank you everyone for the helpful information! It's clear that my IRA distributions won't help with Social Security calculations, so I'll focus on continuing my part-time work to replace those zero years. I'll also look into the divorced spouse benefits since we were married for 22 years. I appreciate all the advice!
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