Pretax 401(K) Investments: Impact On Social Security Benefits

401(k) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.

Pretax 401k contributions do not affect Social Security benefits

K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.

The income you receive from your 401(k) or other qualified retirement plan doesn’t affect the amount of the Social Security retirement benefit you receive each month, but does affect whether your benefits are taxable. For pretax savings, taxes become payable when funds are withdrawn, presumably when the individual retires and falls under a lower tax bracket. A further incentive for employees to contribute is that the law permits employers to contribute to the fund as well. When these plans were first introduced, many employers matched dollar-for-dollar up to a certain percentage of the employee’s contribution; although, over the years, it was not uncommon to see companies modifying their policies on the company match.

Fidelity recommends that investors sock away 18% of their income on a pretax basis every year to prepare for a retirement that begins at age 67. This guideline is based on the assumption that you’ve started saving for retirement at age 30. If you’ve started at age 25, it’s 15%. For age 35, it’s 23%. These figures include an employer match. They assume that you will have Social Security benefits and don’t have a pension, which is likely the case, given the trend away from pensions and toward 401(k)s. Though it may be difficult to guess, and tax rates in the future are unknown, you should ask yourself whether you’ll be in a higher or lower income tax bracket at retirement.

Taxes on 401k contributions are Social Security and Medicare

• K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.
• K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.
• K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.
• K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.
• K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.

401k withdrawals are taxable in retirement

When you withdraw funds or take distributions from your 401(k) in retirement, you must face its tax consequences. Distributions are taxed as ordinary income but the tax burden you’ll incur varies by the type of account you have: a traditional 401(k) or a Roth 401(k). It also depends on when you withdraw funds from your account.

Traditional 401(k) withdrawals are taxed at the account owner's current income tax rate. Roth 401(k) withdrawals generally aren't taxable, provided the account was opened at least five years ago and the account owner is age 59½ or older.

When you take a distribution from your 401(k), your retirement plan will send you a Form 1099-R. This tax form shows how much you withdrew overall and the federal and state taxes withheld from the distribution if applicable. This tax form for 401(k) distribution is sent when you’ve made a distribution of $10 or more.

Once you start withdrawing from your traditional 401(k), your withdrawals are usually taxed as ordinary taxable income. That said, you’ll report the taxable part of your distribution directly on your Form 1040 for any tax year that you make a distribution. The tax rate for your 401(k) distributions will depend on which federal tax bracket you are in at the time of withdrawal.

The distributions from these plans are usually taxed as ordinary income at the rate for your tax bracket in the year you make the withdrawal. You may qualify for special tax treatment, however, if you were born before Jan. 2, 1936 and you take your 401(k) as a lump sum.

Social Security benefits are taxable if income exceeds a threshold

K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.

The income you receive from your 401(k) or other qualified retirement plan doesn’t affect the amount of the Social Security retirement benefit you receive each month, but does affect whether your benefits are taxable. For pretax savings, taxes become payable when funds are withdrawn, presumably when the individual retires and falls under a lower tax bracket. Fidelity recommends that investors sock away 18% of their income on a pretax basis every year to prepare for a retirement that begins at age 67. This guideline is based on the assumption that you’ve started saving for retirement at age 30. If you’ve started at age 25, it’s 15%. For age 35, it’s 23%. These figures include an employer match. They assume that you will have Social Security benefits and don’t have a pension, which is likely the case, given the trend away from pensions and toward 401(k)s. Though it may be difficult to guess, and tax rates in the future are unknown, you should ask yourself whether you’ll be in a higher or lower income tax bracket at retirement.

Pretax 401k savings are taxable when withdrawn

K) contributions and withdrawals do not affect Social Security benefits. Contributions to a 401(k) are made with pretax dollars but are subject to Social Security and Medicare taxes. Contributions to a Roth 401(k) are subject to income taxes. You’ll pay your income tax on non-Roth 401(k) distributions in retirement. Income from Social Security may increase annually if the Social Security Administration approves a cost of living adjustment (COLA), commonly based on inflation. For 2025, recipients can expect a 2.5% increase. Individuals may have to pay income tax on some of their Social Security benefits if their annual combined income—including those 401(k) distributions—exceeds a certain amount.

When funds are withdrawn, taxes become payable, presumably when the individual retires and falls under a lower tax bracket. Fidelity recommends that investors sock away 18% of their income on a pretax basis every year to prepare for a retirement that begins at age 67. This guideline is based on the assumption that you’ve started saving for retirement at age 30. If you’ve started at age 25, it’s 15%. For age 35, it’s 23%. These figures include an employer match. They assume that you will have Social Security benefits and don’t have a pension, which is likely the case, given the trend away from pensions and toward 401(k)s.

The income you receive from your 401(k) or other qualified retirement plan doesn’t affect the amount of the Social Security retirement benefit you receive each month, but does affect whether your benefits are taxable. Some people have health insurance coverage under a group health when they become eligible for Medicare benefits. This is often the case for people age 65 and older who continue to work or are covered under the health insurance plan offered by a spouse’s employer.

Medicare recipients are subject to the rules of coordination of benefits and may be wondering if SS benefits are managed in a similar way. When these plans were first introduced, many employers matched dollar-for-dollar up to a certain percentage of the employee’s contribution; although, over the years, it was not uncommon to see companies modifying their policies on the company match.

Frequently asked questions