• Chris Stein, CFP®

Retirement Accounts and the Earnings Test

We received an email this week with a question about how the earnings test is applied to withdrawals from retirement accounts…

“When applying the earnings test and considering the one time exclusion of annual income from earlier in the year, do investment withdrawals (401k or IRA) count toward the monthly limit? What if the withdrawal is a lump sum and/or is taken before you start drawing SS midyear?”

Withdrawals Not Included

The good news is that neither 401k, nor IRA withdrawals are included in the earnings used by Social Security for purposes of the earnings test. Only earnings from work are included. So anything that is not earnings from work is excluded in the earnings test calculation. For this reason it does not matter whether the withdrawal happens before or after you retire and start claiming Social Security.

Deferred Income

It is also worth reminding people that any deferred income that was earned prior to claiming Social Security, but was actually received after, is also excluded from the earnings test.

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