A $70,000 401(k) withdrawal does not affect Social Security benefits, which are based solely on earned income up to $24,480.
A 63-year-old retiree withdrew $70,000 from his 401(k) and earned $10,000 from welding, but Social Security applied its earnings test only to the $10,000. The 2026 limit for earned income is $24,480, excluding retirement account distributions entirely.
While Social Security disregards 401(k) withdrawals, the IRS includes them in provisional income calculations, potentially taxing up to 85% of Social Security benefits. Large distributions may also trigger IRMAA Medicare premium surcharges with a two-year lag, affecting future costs.
Retirees often assume retirement account withdrawals reduce benefits, but the earnings test applies only to wages and net self-employment income, not distributions.