Does 401k Distribution Count as Income for Social Security?
Learn the critical distinction between income that can reduce Social Security payments and income that can make them taxable when planning your 401(k) withdrawals.
A common question in retirement planning is how distributions from a 401(k) plan affect Social Security benefits. Government agencies define “income” in distinct ways, so a 401(k) withdrawal can influence your finances in relation to Social Security. The impact occurs through the tax system and Medicare costs, rather than a direct reduction of your Social Security check.
The Social Security Earnings Test
The Social Security Administration’s (SSA) annual earnings test only applies to individuals who receive retirement benefits before their full retirement age (FRA) and continue to work. This test limits how much you can earn from employment while collecting early benefits. If your earnings exceed this limit, the SSA temporarily withholds a portion of your benefits. For 2025, if you are under FRA for the entire year, the limit is $23,400, and the SSA deducts $1 for every $2 earned above that amount.
A higher limit of $62,160 applies in the year you reach FRA for the months leading up to your birth month, with $1 deducted for every $3 earned above this threshold. Once you reach FRA, the earnings test no longer applies. Any benefits withheld due to the earnings test are not permanently lost and are recalculated into your monthly benefit once you reach FRA.
The definition of “earnings” for this test is specific, including only wages from an employer or net earnings from self-employment. Income from other sources, often called passive income, is not included in this calculation. This means that money from pensions, annuities, interest, dividends, and capital gains from investments does not count toward the earnings limit. Distributions from a traditional 401(k) or other retirement accounts are not considered earnings for this test and will not cause a reduction in your Social Security payments.
How 401(k) Distributions Affect Benefit Taxation
While a 401(k) distribution does not count for the earnings test, it can affect whether your Social Security benefits are subject to federal income tax. The Internal Revenue Service (IRS) uses a calculation known as “combined income” to determine the taxability of your benefits. This applies to all Social Security recipients, regardless of age.
The formula for combined income is your Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of your Social Security benefits. A distribution from a traditional, pre-tax 401(k) is considered taxable income. This withdrawal increases your AGI for the year, which in turn raises your combined income and can cause your Social Security benefits to become taxable.
For 2025, if you file as an individual and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your combined income exceeds $34,000, up to 85% of your benefits could be taxed. For married couples filing jointly, the 50% bracket is for combined income between $32,000 and $44,000, and the 85% bracket applies to income above $44,000.
For example, a married couple with $20,000 in Social Security benefits and no other income would have a combined income of $10,000, and their benefits would not be taxed. If they take a $25,000 distribution from a traditional 401(k), their AGI becomes $25,000. Their new combined income is $35,000 ($25,000 AGI + $10,000 from Social Security), pushing them into the 50% taxable bracket.
The Role of Roth 401(k) Distributions
Distributions from a Roth 401(k) are treated differently than those from traditional 401(k)s. Qualified distributions from Roth accounts are tax-free at the federal level because contributions are made with after-tax dollars.
For a distribution to be qualified, the account holder must be at least 59½ years old, and the distribution must occur after a five-year holding period. The holding period begins on January 1 of the year the first Roth contribution was made.
Because a qualified Roth 401(k) distribution is not taxable income, it is not included in your Adjusted Gross Income (AGI). This means a Roth 401(k) withdrawal has no impact on the combined income calculation that determines if your Social Security benefits are taxable. Using Roth funds can help manage your tax burden in retirement by keeping your combined income below the taxation thresholds.
Related Impact on Medicare Premiums
A 401(k) distribution can also affect your Medicare premiums. Higher-income beneficiaries pay an Income-Related Monthly Adjustment Amount (IRMAA), which is a surcharge on premiums for Medicare Part B and Part D. This determination is made by the Social Security Administration based on your tax return from two years prior.
The income figure used for IRMAA is your Modified Adjusted Gross Income (MAGI), which is similar to AGI. A withdrawal from a traditional 401(k) increases your AGI and MAGI. This increase can push you into a higher IRMAA bracket, resulting in a surcharge on your Medicare premiums two years later. For example, your 2025 IRMAA is based on your 2023 MAGI.
For 2025, the standard Part B premium is $185.00 per month. An individual with a 2023 MAGI above $106,000 or a couple with a MAGI above $212,000 will pay more. The surcharges are tiered; an individual with a MAGI between $106,001 and $133,000 would pay an extra $74.00 per month for Part B in 2025. This shows how a large 401(k) withdrawal can lead to higher Medicare costs.