401k Contributions While Collecting Social Security
Coordinating your 401(k) contributions and Social Security while working involves distinct financial rules for your income, benefits, and taxes.
It is increasingly common for individuals to work later in life, and you can contribute to a 401(k) plan while collecting Social Security retirement benefits. This means you can receive Social Security checks, earn a salary, and defer a portion of that salary into your employer-sponsored retirement plan simultaneously. Navigating this path involves understanding rules from both the Social Security Administration (SSA) and the Internal Revenue Service (IRS). These regulations govern how your earnings impact your benefits and how your income is taxed.
The Social Security Earnings Test
If you claim Social Security benefits before reaching your Full Retirement Age (FRA), the Social Security Administration applies the retirement earnings test. FRA is the age you are entitled to 100% of your earned benefit and varies by birth year. For those born between 1943 and 1954, FRA is 66, gradually increasing to 67 for anyone born in 1960 or later.
The earnings test limits how much you can earn from work while receiving benefits. For 2025, if you are under your FRA for the entire year, the annual earnings limit is $22,320. If your earnings exceed this, the SSA temporarily withholds $1 in benefits for every $2 you earn above the limit. This calculation is based only on earned income from a job or self-employment.
A higher limit applies in the calendar year you reach FRA. During the months before your birth month, you can earn up to $59,520 in 2025. For earnings above this threshold, the SSA withholds $1 in benefits for every $3 earned. The earnings test disappears in the month you attain your FRA, and you can earn any amount without benefit reduction.
These withheld benefits are not permanently lost. Once you reach FRA, the SSA recalculates your monthly benefit, giving you credit for the months benefits were withheld. This adjustment increases your future monthly payments, allowing you to recoup the withheld amounts over time.
How 401(k) Contributions Affect the Earnings Test
Making pre-tax contributions to a 401(k) does not lower your income for the Social Security earnings test. The SSA and IRS use different definitions of income. While your 401(k) contributions reduce your taxable income for the IRS, they do not reduce the income counted by the SSA.
The SSA considers your gross wages before any deductions, including retirement plan contributions, when applying the earnings test. For example, if your salary is $40,000, the SSA counts your earnings as $40,000 for the test, even if you contribute $10,000 to your 401(k).
Tax Implications of Your Income and Contributions
While 401(k) contributions do not affect the SSA’s earnings test, they are a factor in federal income taxes. The IRS uses a formula to determine if a portion of your Social Security benefits is taxable, which is based on your “combined income,” or provisional income. To determine your combined income, you take your Adjusted Gross Income (AGI), add any nontaxable interest, and then add 50% of your total Social Security benefits for the year.
The formula is: Combined Income = AGI + Nontaxable Interest + 50% of Social Security Benefits. Your AGI is reduced by pre-tax 401(k) contributions. A portion of your benefits may be subject to federal income tax based on the following combined income thresholds:
- For an individual filer, up to 50% of benefits may be taxable with a combined income between $25,000 and $34,000.
- For an individual filer, up to 85% of benefits may be taxable with a combined income over $34,000.
- For married couples filing jointly, up to 50% of benefits may be taxable with a combined income between $32,000 and $44,000.
- For married couples filing jointly, up to 85% of benefits may be taxable with a combined income over $44,000.
By making pre-tax 401(k) contributions, you lower your AGI and, therefore, your combined income. This reduction could place you in a lower taxation tier or eliminate taxes on your Social Security benefits.
Required Minimum Distributions from Your 401(k)
The IRS mandates that you begin taking Required Minimum Distributions (RMDs) from most retirement accounts, with RMDs generally starting in the year you turn age 73. However, an exception exists for those who are still employed. If you are still working for the company that sponsors your 401(k) plan, you can typically delay taking RMDs from that specific plan until you retire, as long as you do not own more than 5% of the company.
This “still working” exception is plan-specific. It does not apply to IRAs or to 401(k)s you hold with former employers. You must still take RMDs from those accounts once you reach the required age, regardless of your current employment status.
After you retire from your current job, you must begin taking RMDs from that 401(k) by April 1 of the following year.