Do IRA Withdrawals Count as Income for Social Security?

Many retirees depend on both Individual Retirement Account (IRA) withdrawals and Social Security for their financial stability. A common point of confusion is how these two income sources interact, specifically whether IRA distributions are considered “income” by the Social Security Administration (SSA). IRA withdrawals can significantly influence the taxability of your Social Security benefits, yet they function differently when it comes to calculating the benefit amount itself.

IRA Withdrawals and the Taxation of Social Security Benefits

The Internal Revenue Service (IRS) uses a formula to determine if your Social Security benefits are taxable based on your “combined income.” The formula is your Adjusted Gross Income (AGI) plus any nontaxable interest plus 50% of your Social Security benefits. Because distributions from traditional IRAs and 401(k)s are included in your AGI, they directly increase your combined income.

This increase can push you across certain income thresholds, triggering taxes on your benefits.

• For an individual, if combined income is between $25,000 and $34,000, up to 50% of benefits may be taxable.
• If an individual’s combined income exceeds $34,000, up to 85% of benefits may be taxable.
• For married couples filing jointly, if combined income is between $32,000 and $44,000, up to 50% of benefits may be taxable.
• If a married couple’s combined income exceeds $44,000, up to 85% of benefits may be taxable.

Consider a married couple with $30,000 in Social Security and $20,000 in other income. Their combined income is $35,000, placing them in the 50% taxable bracket. If they take a $10,000 distribution from a traditional IRA, their AGI rises to $30,000. Their new combined income becomes $45,000, pushing them over the $44,000 threshold and making up to 85% of their benefits taxable.

A different rule applies to qualified distributions from a Roth IRA. Since contributions to Roth accounts are made with after-tax dollars, the withdrawals are tax-free. Consequently, qualified Roth IRA distributions are not included in your AGI and do not increase your combined income, meaning they have no impact on the taxability of your Social Security benefits.

IRA Withdrawals and the Social Security Earnings Test

A separate concern is whether taking money from an IRA can reduce the dollar amount of your monthly Social Security check. This involves the Social Security Earnings Test, which only applies to individuals who claim benefits before reaching full retirement age and continue to have income from work.

The earnings test sets a limit on how much a beneficiary can earn from a job or self-employment before their benefits are temporarily reduced. For those below full retirement age for the entire year, the earnings limit is $23,400. For every $2 earned over this limit, the SSA withholds $1 in benefits.

The defining factor for this test is what the SSA considers “earned income,” which is strictly limited to wages from an employer and net earnings from self-employment. Income from other sources, including pensions, investment income, and distributions from traditional or Roth IRAs, is not considered earned income for this test.

Therefore, you can withdraw any amount from your IRA without it affecting your benefit payment under the earnings test. While a large traditional IRA withdrawal can lead to a higher tax bill, it will not cause the SSA to reduce your monthly Social Security payment itself. Once you reach full retirement age, the earnings test no longer applies.

Managing Provisional Income from Withdrawals

Since traditional IRA withdrawals impact the combined income formula, strategic planning can help manage the taxability of your Social Security benefits. One strategy involves Roth conversions, which are movements of funds from a pre-tax traditional IRA to a post-tax Roth IRA. The amount converted is treated as ordinary income and taxed in the year of the conversion. Executing these conversions before you begin collecting Social Security can reduce the balance in your traditional IRA, lowering future taxable withdrawals.

Another tool for individuals aged 70.5 and older is the Qualified Charitable Distribution (QCD). A QCD allows you to transfer up to $108,000 directly from a traditional IRA to a qualified charity. This action can satisfy all or part of your Required Minimum Distribution (RMD), which starts at age 73. The amount transferred via a QCD is excluded from your AGI, which prevents it from increasing your combined income.

The timing of your withdrawals also offers a strategic opportunity. If you anticipate needing a large sum for a major expense, such as a down payment on a home, it may be better to take that distribution in a year before you start receiving Social Security. This prevents a one-time, substantial withdrawal from dramatically inflating your combined income for a single year and pushing your benefits into a higher tax bracket.