Do ira withdrawals count as income for social security

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Do withdrawals from my IRA affect Social Security benefits?
Does my IRA count as income for Social Security?
Do 401k distributions count as earned income for Social Security?
Is money withdrawn from an IRA considered income?

Karin Price Mueller | NJMoneyHelp.com for NJ.com

Q. My husband retired at 65. He has a 401(k) that he transferred to an IRA. He’s only allowed to make so much money since he’s 65 while he’s getting Social Security. If we withdraw money from his IRA, will that count against his income from Social Security?

— Curious

A. Congratulations on your husband’s retirement.

There are a few things to understand here, and it includes some good news for you.

First, Social Security gives us the opportunity to retire younger than our full retirement age and still make money, said Betty Thomas, a chartered financial consultant and certified financial planner with Peapack Private Wealth Management in New Providence.

The earnings limit if you are under full retirement age is $19,560 for 2022, she said. If you earn over the limit, then Social Security will deduct $1 from your benefit for every $2 earned over the annual limit.

If you are in the year you’ll reach full retirement age, the limit on earnings is $51,960, she said. If you exceed the limit the deduction would be $1 in for every $3 earned above the limit.

“The good news is Social Security defines `earned income’ as wages from job or net earnings from self-employment,” Thomas said. “If he is withdrawing money from his IRA, it does not count towards the earnings limit.”

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.

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Taxes can get complex even for people without high incomes. In this week's lead question we look at how pulling funds from an IRA will impact his taxes and his Social Security benefits.

Q.Hi, I am 63 drawing my Social Security and have been working part time as well. I have a retirement IRA that I would like to start withdrawing from in 2014. I am no longer working part time, so I will only have my Social Security as income in 2014.($975 monthly for 2014.) Can I withdraw $7,000-$10,000 from my IRA in 2014 without having to pay a lot of taxes? Or does the taxes apply regardless of the dollar amount I withdraw yearly? Thanks — I.R.

A. Withdrawals from IRAs are taxable income and Social Security benefits can be taxable. Whether you actually owe taxes and how much depends on a number of things. If Social Security is truly your only income in 2014, your Social Security payments should be tax free and you may not owe any taxes on the IRA either. I'll start with the IRA.

If you never made any nondeductible contributions to any of your IRA accounts, all of the IRA withdrawal is counted as taxable income. If you have made nondeductible contributions, some of your withdrawal is excluded from taxable income. You should have been tracking and reporting the nondeductible contributions on Form 8606 with your tax returns in past years.

The non taxable portion of a withdrawal is determined by a "pro rata" rule. It is calculated by comparing the cumulative nondeductible contributions to the balance of all IRA accounts in your name. For instance, say over the years you have made $30,000 of nondeductible contributions to an IRA worth $50,000 and have a second IRA that never received any nondeductible contributions that is also worth $50,000. You now withdraw $10,000. $30,000/$100,000= .30. Your $10,000 distribution will result in just $7,000 of taxable income because $3,000 ($10,000 X .30) is excluded. In future tax years, $27,000 is left to use when figuring the taxable amount of withdrawals.

The amount of Social Security benefits that is taxable depends upon your "combined income.” Social Security describes this as your Adjusted Gross Income (AGI), plus nontaxable interest, plus half of your Social Security benefits. AGI includes wages, self employment income, interest, dividends, capital gains, pension payments, rental income and a several other items.

Your combined income is then compared with a scale. If you file as an "individual" and your combined income is less than $25,000, none of your Social Security is taxable. For joint filers, combined income of less than $34,000 means no taxes on Social Security. As combined income rises, up to 85% of Social Security benefits can be subject to income taxes. If you make a fully taxable $10,000 IRA distribution, and have no other income, your combined income would be $15,850. $10,000 from the IRA plus $5,850 (1/2 your Social Security).

The $10,000 from the IRA should be tax free as well because of the standard deduction ($6,200 for singles, $12,400 for joint filers) and personal exemption ($3,950 per person) exceed $10,000.

Q.Hi Dan, My wife is 67 years-old and retired after working 43 years as a Respiratory Therapist and started collecting Social Security benefits at age 65. I will be 68 Feb. 22, 2014. I am still working as a Principal Sourcing Agent and have been the higher wage earner and don't plan to retire soon since I am relatively healthy and still a leader in cost reductions. Can I start to collect spousal benefits without reducing my future benefits? I am a bilateral below knee amputee that previously collected disability benefits for my family during rehab and physical therapy from 1969 through 1974 but have been gainfully employed ever since.
Regards — T.M.

A. Yes, you can and should claim a spousal benefit off of your wife's record. Just be sure to restrict your application to her spousal benefit and your retirement benefit will continue to earn delayed credits until you reach 70. Happy early Birthday.

Q.My wife is 67 and started drawing at her Full Retirement Age (FRA) of 66. I am 63 and have not retired yet. If I were to retire before my FRA (66 as well) and she claimed spousal benefits would she then get a total of hers and mine equal to half of my maximum? Thanks — Mark

A. No. She cannot. She can get her retirement or a spousal benefit if larger but not both. Keep in mind that if you file before your FRA, you will be deemed to have started your retirement benefits early and your benefits will be permanently reduced.

Q.Hi. First off, just have to say that reading through your question and answers has been very informative and helpful. My mom just turned 65. She is currently drawing social security, $905 monthly. My dad was drawing social security as well, $533 monthly. He passed away a week ago. Will my mom be able to draw his social security as well as hers? If not, any suggestions. Thanks — Sarah

A.I'm very sorry to hear of your dad's passing. Please pass my condolences to your family.
Her survivor's benefit is the larger of her retirement or your dad's. She cannot keep getting both checks.

.Dan Moisand answers reader questions on all things retirement every Friday. If you have a question for Dan, please email him at.

.Dan Moisand’s comments are for informational purposes only and aren’t a substitute for personalized advice. Consult your adviser about what is best for you.

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Is money withdrawn from an IRA considered income?

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.