Income from a 401(k) doesn't affect the amount of your Social Security benefits, but it can boost your annual income to a point where those benefits will be taxed.
The short answer is no, taking a distribution from your 401(k) does not impact your eligibility for (or the amount of) your Social Security benefits.
The National Registry of Unclaimed Retirement Benefits is a good place to start. By entering your Social Security number, you can quickly see if there are any unclaimed 401(k) funds that belong to you.
For example, if someone pays an individual's medical bills, or offers free medical care, or if the individual receives money from a social services agency that is a repayment of an amount he/she previously spent, that value is not considered income to the individual.
When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net profit if you're self-employed. We include bonuses, commissions, and vacation pay.
High-Income Earners
High-income employees are not technically exempt from Social Security taxes, but part of their income is. In 2024, every dollar of taxable income someone makes above $168,600 (up from $160,200 in 2023) will effectively be exempt from Social Security taxes.
The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).
You'll simply need to contact your plan administrator or log into your account online and request a withdrawal.
While there is no legal time limit on how long an employer or a former employer can freeze your 401(k) account, companies usually try to rectify these situations as soon as possible. Keep in mind that even during the blackout period, your money stays invested, and your account can continue to grow.
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.
Contributing to retirement accounts
Another key advantage of ongoing earned income even after you collect Social Security is that you can keeping contributing to your retirement savings accounts like traditional IRAs, health savings accounts (HSAs), Roth IRAs, and 401(k)s.
As much as you want at any age The amount of money that you have in your bank accounts has no bearing on your social security benefits, even if you're collecting ss early between 62–66.
That means those Social Security taxes have already been taken out of the money in your 401(k) (though 401(k) plans are protected from state and federal taxes). Therefore, withdrawing funds from your 401(k) will not reduce the amount of money you receive each month in SSDI benefits.
According to the Social Security Administration, or SSA, the monthly retirement benefit for Social Security recipients is currently $1,783.55 in 2024 on average. Several factors can drag that average up or down, but you have the most control over the biggest variable of all — the age that you decide to cash in.
With only a few exceptions, your 401(k) distributions are subject to a mandatory 20% withholding. Money withheld from your distributions applies toward your tax bill, similar to paycheck withholding when you're working a job.
The short answer is that yes, you can withdraw money from your 401(k) before age 59 ½. However, early withdrawals often come with hefty penalties and tax consequences.
Find Your 401(k) With Your Social Security Number. You can find your 401(k) by using Capitalize's 401(k) Finder tool, contacting your HR administrator, or through the National Registry of Unclaimed Retirement Benefits. The process is quick and only requires basic information, including your Social Security number.
By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.
Again, it's important to remember that your 401(k) plan is an entirely separate thing from Social Security. Your 401(k) is offered by your employer while Social Security comes from the government. So making contributions to a 401(k) will not reduce your Social Security benefits in any way.
You report the taxable portion of your Social Security benefits on line 6b of Form 1040 or Form 1040-SR. Your benefits may be taxable if the total of (1) one-half of your benefits, plus (2) all of your other income, including tax-exempt interest, is greater than the base amount for your filing status.
Key Takeaways
You can cash out your 401(k) plan at age 62, but you may want to consider withdrawing gradually from your 401(k) so as to never pay more than a specified amount of tax in any given year. Once you hit age 72, you're now required to take a certain amount of money out based on your life expectancy.
The Bottom Line. When do you stop paying Social Security tax? The answer is almost always "never" as long as you're employed but there are exceptions. Consider consulting with a tax professional if you think any of these situations or exceptions might apply to you.
Unemployment compensation generally is taxable. Inheritances, gifts, cash rebates, alimony payments (for divorce decrees finalized after 2018), child support payments, most healthcare benefits, welfare payments, and money that is reimbursed from qualifying adoptions are deemed nontaxable by the IRS.
Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.