401(k) and Social Security: What You Should Know

401(k) and Social Security: What You Should Know

401(k) and social security

Whether you’re looking forward to retirement in 30 years or it’s just around the corner, it’s important to understand the interaction between your 401(k) and your social security disability benefits. Social Security Disability Advocates USA shares everything you need to know, including information for those who are also receiving disability benefits.

Before we delve deeper, let’s take a look at the crucial differences between a 401k and social security benefits.

What Is a 401(k)?

A traditional 401(k) is a retirement savings fund often offered through an employer. Employees have the option of depositing a portion of their paycheck into their 401(k) account, and the employer may match the employee’s contribution up to a certain percentage. 401(k) earnings, employer contributions, and interest are not taxed as income, although once you make a withdrawal from your 401(k) account, that amount will be subject to taxation.

What Are the Age Requirements for 401(k) Funds?

Federal law requires all employers who offer 401(k) benefits to extend those benefits to any employee who is 21 years old or older and who has worked for the company for at least one year. 

You generally have full access to 401(k) funds once you have reached 59 ½ years old. It is also possible to make a withdrawal from your 401(k) before you have reached this age if you have demonstrated financial hardship such as disability or unemployment. If you wish to make a withdrawal from your 401(k) outside of these circumstances, however, you will be required to pay tax penalties on the amount withdrawn.

What Are Social Security Retirement Benefits?

Social security includes benefits received by those with disabilities, widows or widowers, and retirees. Social security retirement contributions are automatically deducted from employee paychecks in the form of Federal Insurance Contributions Act (FICA) taxes. These taxes are part of the pay-as-you-go structure of social security. 

In other words, your contributions to social security provide funding for current beneficiaries, while others’ future contributions allow you to collect your due benefits at retirement. You can begin collecting social security retirement benefits at 62 years old, although your monthly benefits will increase the longer you wait to retire, with benefits maxing out when you’re 70 years old.

Do 401(k) Contributions Reduce Social Security Benefits?

401(k) contributions do not reduce the amount of social security benefits you receive. This is because although 401(k) contributions are not subject to income tax at the time of your contributions, they are still subject to social security taxes. 

So although you’ll owe income taxes on your 401(k) withdrawals, you won’t owe any additional social security taxes. Bottom line, it is possible to maximize your retirement savings by utilizing both a 401(k) and social security without being penalized.

Can I Collect Disability Benefits And Have a 401(k)?

You can still qualify for disability benefits while withdrawing money from your 401(k). You will also be able to withdraw funds from your private 401(k) early with no tax penalty, as long as you have already paid your social security taxes on those contributions and have a qualifying disability.

Can I Collect Disability Benefits and Social Security Retirement Benefits?

Unfortunately, beneficiaries cannot collect both social security disability benefits and retirement benefits simultaneously. However, you may be able to qualify for Supplemental Security Income (SSI) to help bolster your disability benefits. 

It should be noted that the qualifying criteria for SSI can be stringent, including income restrictions that take 401(k) earnings into account. A social security benefits lawyer may be able to help you with the application or appeals process if your application was denied.

Need Help With 401(k) and Social Security?

Trying to plan for retirement is confusing enough as it is. If you’re also dealing with a life-changing disability that disrupts your ability to work, you may be wondering what you can do to ensure that you’ll still be able to support yourself in retirement. 

The Social Security Administration is notorious for complicated applications, lengthy wait times, denials, and confusing appeals processes. To get the benefits you deserve, you’ll want the assistance of a qualified social security benefits attorney. Contact us today by calling 602-952-3200, chatting with a representative online, or submitting the details of your case using our secure contact form.

This is attorney advertising. SSDA, LLC is a group of attorneys that pursues claims for Social Security Disability benefits on behalf of its clients against the Social Security Administration. SSDA, LLC is in no way a part of the Social Security Administration. Further, the information on this blog is for general information purposes only. Nothing herein should be taken as legal advice. This information is not intended to create, and receipt or viewing does not constitute, a representative-client relationship.

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