Does a 401(k) and IRA Count Toward the Earnings Limit? (2024)

FAQs

Do 401(k) and IRA contributions count toward the Social Security earnings limit? ›

Income from a 401(k) doesn't affect the amount of your Social Security benefits but it can boost your annual income to a point where those benefits will be taxed. This can be a conundrum for someone who's at an age where they're required to both start withdrawing from their 401(k) and start collecting Social Security.

Yes, you can have both accounts and many people do. The traditional individual retirement account (IRA) and 401(k) provide the benefit of tax-deferred savings for retirement. Depending on your tax situation, you may also be able to receive a tax deduction for the amount you contribute to a 401(k) and IRA each tax year.

Thankfully, employer matches do not count toward the 401(k) elective deferral contribution limit. In 2024, eligible employees can add up to $23,000 to their 401(k) retirement plans, regardless of how much their employers contribute.

Advantages of Having a 401(k) and an IRA

Though you may not be able to claim a tax deduction on all your contributions, you can max out each type of account in the same tax year. Plus, the IRS permits those who are at least 50 years old to make additional “catch-up” contributions into each account.

What income counts…and when do we count it? If you work for someone else, only your wages count toward Social Security's earnings limits. If you're self-employed, we count only your net earnings from self-employment.

"A Roth IRA or Roth 401(k) can help you save on taxes in retirement. Not only are withdrawals potentially tax-free,² they won't impact the taxation of your Social Security benefit.

The simple answer is yes, you can. However, there are some caveats when it comes to deducting your IRA contributions if you participate in both types of plans. Fortunately for your retirement nest egg, you can contribute to both types of retirement accounts.

If your income is too high, you won't be able to contribute to a Roth IRA directly, but you do have an option to get around the Roth IRA income limit: a backdoor Roth IRA. This involves putting money in a traditional IRA and then converting the account to a Roth IRA.

There are no income limitations to contribute to a non-deductible Traditional IRA, and the maximum contribution per year is $6,500 for tax year 2023 and $7,000 for tax year 2024 ($7,500 for tax year 2023 and $8,000 for tax year 2024 if you're age 50 or over).

Employer matches don't count toward this limit and can be quite generous. However, the total contribution limit, which includes employer contributions (and after-tax contributions, if your employer offers that feature), has increased to $69,000 in 2024, up from $66,000 in 2023.

Can I contribute 100% of my salary to my 401k? ›

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus.

Depending on the company you work for, your plan may automatically stop your contributions when you hit the limit. They may have measures in place to prevent you from setting your contribution amount too high or stop more money from going into your 401(k) once you've contributed the maximum.

Roth IRA distributions have no effect on Social Security benefits, including the earnings test or taxation of benefits. Any unearned income, such as interest or dividends, doesn't affect your ability to collect Social Security, but it can make more of your benefits taxable.

When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net profit if you're self-employed. We include bonuses, commissions, and vacation pay.

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.

The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).