Riviera Beach, Florida – A reader from Riviera Beach, Florida, has reached out to inquire about the implications of cashing in on their 401(k) before reaching full retirement age. With September 2024 marking the date of their full retirement age, the reader is concerned about potential tax liabilities and impacts on their Social Security benefits.
Seeking to ensure that their financial decisions do not adversely affect their Social Security benefits, the reader is working part-time while wanting to tap into their 401(k) savings. However, they are uncertain about the tax implications of withdrawing from their 401(k) before reaching full retirement age.
In response to the reader’s concerns, it is important to understand the relationship between 401(k) withdrawals, work earnings, and their impact on Social Security benefits. Although reaching the full retirement age in 2024 alleviates the work earnings limit, potential implications on Medicare premiums and income tax on Social Security benefits must be considered.
Prior to reaching full retirement age, the reader’s part-time work earnings in 2024 will not affect their monthly Social Security benefit, provided their earnings do not exceed $59,520 before September 2024. However, withdrawals from their 401(k) may impact their net Social Security payments in 2026 through Medicare’s IRMAA provision.
Moreover, the reader should consider the impact of their anticipated 401(k) withdrawals on the taxation of their Social Security benefits in 2024. Whether they file taxes as single or married-jointly, their modified adjusted gross income (MAGI) will determine the percentage of their Social Security benefits subject to income tax.
In conclusion, careful consideration of the implications of 401(k) withdrawals on work earnings, Medicare premiums, and income tax obligations is essential for the reader to make informed financial decisions. It is crucial for them to seek professional advice and explore their options with a financial advisor to minimize any potential negative impacts on their retirement savings and Social Security benefits.