If you’re taking Social Security before your full retirement age, you may want to take money out of your 401k. Is that allowed? In this video we explain how taking money out of retirement accounts impacts the Social Security Earnings limit for 2023.

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Retirement seems like a distant dream for many of us. However, it’s important to plan ahead to secure your financial future. Having a 401k plan is a smart move towards that goal. It helps you save for your retirement and grow your wealth over the years. One of the most significant benefits of a 401k plan is that it allows you to withdraw money when you retire. But, did you know that such withdrawals can impact your Social Security earnings limit? In this article, we’ll discuss how 401k withdrawals influence the Social Security earnings limit.

Before we dive into the details, let’s first understand what the Social Security earnings limit is. As per the Social Security Administration, the earnings limit is the maximum amount of income a person aged 62-66 years can earn without having their Social Security benefits reduced. The limit for 2021 is $18,960. This means if you earn more than that amount while receiving Social Security benefits, the SSA withholds $1 from your benefits for every $2 you earn over the limit. If you’re 66 or older, this limit increases to $50,520, and the penalty decreases to $1 for every $3 earned.

Now let’s talk about how 401k withdrawals impact the Social Security earnings limit. When you withdraw money from a traditional 401k plan, it’s considered taxable income. That means the money you withdraw counts towards the Social Security earnings limit. This can be problematic if you’re already receiving Social Security benefits as the extra income from 401k withdrawals can reduce your benefits. Moreover, the amount of tax you need to pay on your 401k withdrawals also depends on your Social Security benefits. If your benefits exceed a certain limit, you may need to pay taxes on your 401k withdrawals.

On the other hand, withdrawing money from a Roth 401k does not affect the Social Security earnings limit as it’s already taxed. As Roth 401k contributions are made after-tax, you’re not required to pay taxes on the withdrawals. This can be especially beneficial for people who rely on Social Security benefits as they can withdraw as much as they need from their Roth 401k without any negative impacts.

In conclusion, 401k withdrawals impact the Social Security earnings limit, and it’s important to plan accordingly. Before withdrawing money from your retirement account, consider the implications on your Social Security benefits and tax liabilities. It’s recommended to consult a financial advisor to understand the best course of action for your retirement planning. By making informed decisions, you can enjoy a comfortable retirement without worrying about finances.