Social Security's earnings test ignores 401(k) withdrawals entirely, counting only wages and net self-employment income against the 2026 limit of $24,480. A $70,000 traditional 401(k) withdrawal enters IRS provisional income calculations, potentially making up to 85% of Social Security benefits taxable at ordinary rates. Large 401(k) distributions can trigger IRMAA Medicare premium surcharges with a two-year delay, so a 2026 withdrawal may raise 2028 Part B and Part D costs.
Many financial professionals are salespeople paid on what they push, not whether you end up wealthier. A fiduciary is the opposite. The SEC legally requires them to put your interests first.
Advisor.com's free matching tool pairs you with vetted fiduciaries from major national firms, all in under three minutes. See who you match with today. Picture a 63-year-old who left his full-time shop job last year, started drawing Social Security early, and now picks up welding and small fabrication work from his garage.
In a single year, he withdraws $70,000 from a traditional 401(k) to cover the mortgage and buy a truck. After business expenses, his welding work produces $10,000 in net self-employment earnings. He assumes the government sees $80,000 in income.
Social Security does not. Its retirement earnings test looks only at the $10,000. The Internal Revenue Service (IRS), meanwhile, is far more interested in the $70,000.
This scenario appears routinely in retirement forums. Someone claims early, takes a large retirement-account distribution, does a little consulting or trade work, and panics that the withdrawal will trigger a benefit clawback. The same withdrawal can still make most of the Social Security benefit taxable and potentially raise Medicare premiums later.
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