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Question on social security reductions due to partial income after retirement?
I'm in the US. I know if I partially retire this year when I reach 62 and apply for Social Security they will reduce the payments proportionately if I make over $14,000 a year in part time income.
My question is, is that reduction in benefits based on GROSS income or NET TAXABLE income? Since I am over 55, could I actually gross $40,000 per year at my job but defer $22,000 of that to my 401K and the maximum allowed $4,000 to my Health Savings Account so that my NET TAXABLE income was only $14,000? Would the IRS then consider my "income" only $14,000 so they would not reduce the monthly Social Security payments? Or are you no longer permitted to contribute to a 401K once you have "officially" retired?
I've searched a lot of websites, both IRS and financial consultant ones, and don't find these question addressed anywhere.
5 Answers
- cynic47Lv 69 years agoFavorite Answer
The Social Security benefit reduction is based on income subject to Social Security tax. HSA deferrals under a section 125 plan are exempt from Social Security tax, but the opposite is true for 401k deferrals. In your example, the income subject to Social Security tax would be $40,000 minus only $4,000, or $36,000, which would result in a considerable reduction in your Social Security benefit.
Source(s): http://www.socialsecurity.gov/pubs/10069.html#a0=2 http://www.irs.gov/taxtopics/tc424.html - 9 years ago
Your gross earned income, including net income from self-employment.
The IRS has no dog in this fight. It's the Social Security Administration that reduces your benefit $1 for each $2 of earned income above the base amount, currently $14,160.
- Anonymous4 years ago
No, no, no. What you place into an IRA has not something to do consisting of your envisioned retirement earnings. in case you made $20,000 final 3 hundred and sixty 5 days and placed $2000 into an IRA, you nonetheless made $20,000 as far using fact the SSA is in contact. (save saving!) The social protection assertion (the final for a at an analogous time as using cost selection motives) you gained includes a projected quantity for age sixty two. That projection takes your final years earnings and assumes you will contine to make that lots each and each 3 hundred and sixty 5 days till you attain sixty two. if your earnings went down interior the final 3 hundred and sixty 5 days the formula used, the projected quantity will additionally bypass down. My earnings has fluctuated with the aid of the years, so I forget approximately approximately any differences in that projection.
