Dear Rusty: My full retirement age (FRA) is 66 and 8 months, which I’ll reach in September 2024. I’m still working 3 days a week. I want to cash in my 401K and want to know if I have to wait until my FRA for IRS purposes or can cash it in anytime in 2024. I don’t want to affect my Social Security or end up paying taxes on my benefits.

Thank you in advance for your service as a Social Security Advisor.

Signed: Seeking to Avoid Taxes

Dear Seeking: We’re not experts on IRS matters here at the AMAC Foundation so I can’t address 401(k) questions, but we can provide information on your Social Security circumstances and how 401(k) withdrawals may affect your SS. I assume from your question that you are now receiving early Social Security and wish to avoid any tax consequences thereto by cashing in your 401(k), as well as from working. Here’s what you need to know:

• Since you will reach your full retirement age (FRA) in 2024, your 2024 work earnings limit will be $59,520 up to the month you reach FRA. If you were born in January 1958, you’ll attain FRA in September 2024. After you have reached your FRA there is no longer a Social Security limit to how much you can earn from working, so your work earnings thereafter will not affect your monthly Social Security benefit regardless of how much you earn. If your part time work between January and August 2024 won’t put you over the $59,520 limit, your work earnings will not negatively affect your gross monthly Social Security benefit.

• Assuming you are on Medicare, the premium for which is deducted from your Social Security payment, withdrawals from your 401(k) might affect your net monthly Social Security payment in two years hence. Medicare premiums are based upon your combined income from all sources, including 50% of the SS benefits you received during the tax year. If your 401(k) withdrawal(s) put you over an income threshold for your tax filing status, you may be required to pay an “IRMAA” (Income Related Monthly Adjustment Amount) on top of the standard Medicare premium. That IRMAA supplement would be deducted from your Social Security, which would affect the net amount of your Social Security payment. Your Medicare premium for each coming year is determined by your combined income from two years prior, so if you “cash in” your 401(K) in 2024, it would affect your net Social Security payments in 2026.

• Whether you will pay income tax on your Social Security benefits is determined by your combined income from everywhere, which the IRS calls your “Modified Adjusted Gross Income” or “MAGI.” MAGI is your income from all sources (except ROTH IRA withdrawals) and includes half of the SS benefits you received during the tax year. If you file your taxes as a single, and your MAGI is over $25,000 – or if you file your taxes as “married-jointly” and your MAGI is over $32,000 – then 50% of the Social Security benefits received during the tax year becomes part of your overall income taxed by the IRS (at your normal IRS tax rate). But if your MAGI as a single filer is more than $34,000 – or as a married/jointly filer over $44,000 – then up to 85% of the SS benefits received during the tax year becomes part of your overall income taxed by the IRS.

So, to recap:

1. Your part time work earnings in 2024 won’t affect your monthly Social Security benefit, unless your 2024 work earnings prior to September 2024 exceed $59,520.
2. Depending on the amount of your 401(k) withdrawals, your 2026 net Social Security payments may be impacted by Medicare’s IRMAA provision. But your 401(k) withdrawals will not affect your gross Social Security payments.

3. Depending on the amount of your 401(k) withdrawals, some of the Social Security benefits received during the 2024 tax year will likely be subject to income tax. That is, if your annual total income, including your 401(k) withdrawals, exceeds the MAGI thresholds described above.

Thank you for submitting your question to our Social Security Advisor department. Be sure to share our link with your family and friends.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.