# Contributing to a 401K and Social Security Benefits

M

#### mmurrell

Hello to all,

I have a client that is nearing retirement. He is convinced he can
retire early (62), work and earn \$34,060, and his benefits will not be
reduced. He determines this amount by the \$20,500 that he would
contribute to his 401K, plus the \$13,560 maximum earnings and still

I contend the \$20,500 contributed to his 401K would count toward the
maximum earnings, and his benefits would be reduced by \$1 for every \$2
in earnings above the \$13,560. (\$20,500 /2 =\$10,250 reduction). Am I
correct?

Thanks for any clarification you can provide.

G

#### George Anthony

mmurrell said:
Hello to all,

I have a client that is nearing retirement. He is convinced he can
retire early (62), work and earn \$34,060, and his benefits will not be
reduced. He determines this amount by the \$20,500 that he would
contribute to his 401K, plus the \$13,560 maximum earnings and still

I contend the \$20,500 contributed to his 401K would count toward the
maximum earnings, and his benefits would be reduced by \$1 for every \$2
in earnings above the \$13,560. (\$20,500 /2 =\$10,250 reduction). Am I
correct?

Thanks for any clarification you can provide.
Check this site: http://www.ssa.gov/pubs/10069.html#count

P

#### Phil Marti

mmurrell said:
I have a client that is nearing retirement. He is convinced he can
retire early (62), work and earn \$34,060, and his benefits will not be
reduced. He determines this amount by the \$20,500 that he would
contribute to his 401K, plus the \$13,560 maximum earnings and still

I contend the \$20,500 contributed to his 401K would count toward the
maximum earnings, and his benefits would be reduced by \$1 for every \$2
in earnings above the \$13,560. (\$20,500 /2 =\$10,250 reduction). Am I
correct?
I don't know who's correct. It's SS benefit law, not tax law. One thing I
do know for sure, though, is that the gross earnings will be reported to SSA
on the W-2. I'm inclined to think they'd go with that number.

But there's absolutely no reason not to just call SSA and find out for sure.
It's not like he's tipping them off to something they won't find out about
anyway.

A

#### Alan

George said:
That document does not address the question. The question is:
What is the amount of earned income used by the SSA when they
make the determination as to whether the individual has exceeded
the maximum allowable amount? Is it the amount in Box 1 of the
W-2 or the amount in Box 1 plus any pre-tax contributions to a
retirement plan?

For an employee, the earnings test uses "wages." SSA defines
wages as the amount that is subject to social security tax. As
such, it would be the amount earned before any pre-tax
contribution to a retirement plan. Or in the case presented...
\$34060.

By the way.. the limit for 2009 is \$14160.

H

#### Harlan Lunsford

Phil said:
I don't know who's correct. It's SS benefit law, not tax law. One thing I
do know for sure, though, is that the gross earnings will be reported to SSA
on the W-2. I'm inclined to think they'd go with that number.

But there's absolutely no reason not to just call SSA and find out for sure.
It's not like he's tipping them off to something they won't find out about
anyway.
The amount that matters here, is Social Security earnings, reported on
W2 forms in box 3, as opposed to Taxable earnings in box 1 which is
derived by subtracting any permitted 401k contributions from the gross.

IOW, SSA don't give a .... whit.. about what's subject to income tax.

ChEAr\$,
Harlan Lunsford, EA n LA

B

#### Brew1

That document does not address the question.  The question is:
What is the amount of earned income used by the SSA when they
make the determination as to whether the individual has exceeded
the maximum allowable amount? Is it the amount in Box 1 of the
W-2 or the amount in Box 1 plus any pre-tax contributions to a
retirement plan?

For an employee, the earnings test uses "wages." SSA defines
wages as the amount that is subject to social security tax. As
such, it would be the amount earned before any pre-tax
contribution to a retirement plan.  Or in the case presented...
\$34060.

By the way.. the limit for 2009 is \$14160.
SSA uses wages shown in Box 3 of a W-2, which of course includes
compensation put into 401-K's etc. Box 1 of his W-2 might show
\$13,560
but Box 3 will show \$34,060. He will be locked into a lower benefit
for not
waiting, as well as have to pay back most of his benefits for that
year.

A

#### Arthur Kamlet

The amount that matters here, is Social Security earnings, reported on
W2 forms in box 3, as opposed to Taxable earnings in box 1 which is
derived by subtracting any permitted 401k contributions from the gross.

IOW, SSA don't give a .... whit.. about what's subject to income tax.

ChEAr\$,
Harlan Lunsford, EA n LA

As usual, the whisky mavEn is Absolutely correct.

A

#### Alan

Brew1 said:
SSA uses wages shown in Box 3 of a W-2, which of course includes
compensation put into 401-K's etc. Box 1 of his W-2 might show
\$13,560
but Box 3 will show \$34,060. He will be locked into a lower benefit
for not
waiting, as well as have to pay back most of his benefits for that
year.
SSA does not use just Box 3. It uses the sum of Box 3 & Box 7.

A

#### Alan

Harlan said:
The amount that matters here, is Social Security earnings, reported on
W2 forms in box 3, as opposed to Taxable earnings in box 1 which is
derived by subtracting any permitted 401k contributions from the gross.

IOW, SSA don't give a .... whit.. about what's subject to income tax.

ChEAr\$,
Harlan Lunsford, EA n LA
See my reply to Brew1. SSA uses the sum of Box 3 & Box 7.

H

#### Harlan Lunsford

Alan said:
SSA does not use just Box 3. It uses the sum of Box 3 & Box 7.
Quite true. We were focused on just the OP's situation and forgot about
servers, or "wait staff", as the politically correct nomenclature
dictates these days.

ChEAr\$,
Harlan Lunsford, EA n LA