Widowed, 62, still working. I qualify for catch-up 401 I want to get my Social Security will this keep me from being taxed to heavily?

[jfcoberly1]

I don't want to lose all my Social Security to taxes because my income is to much. Just trying to have enough for retirement in a few years. Later I will apply for my survivors benefits as they are more

[xmasbaby0]

Not sure what your question is in regard to your 401k.    If you are collecting Social Security benefits while working, you need to understand how SS is taxed.

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2019 it was $17,640— for 2020 it was $18,240; for 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2023 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 11 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont  These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

The tax laws for 2024 will change——for  tax year 2024 Missouri and Nebraska will no longer tax SS

[jfcoberly1]

I want to max out my 401 contributions to offset a high tax debt if I apply for my SS now while I am still working.  I can't afford to catch-up without it. My SS is smaller than my survivors benefits at 67 I would be retired then and would change to his SS.

I just want to be sure my maxed out 401 contributions would LOWER my tax debt so all my Social Security wouldn't be taxed away.

[Opus 17]

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@jfcoberly1 wrote:

I want to max out my 401 contributions to offset a high tax debt if I apply for my SS now while I am still working.  I can't afford to catch-up without it. My SS is smaller than my survivors benefits at 67 I would be retired then and would change to his SS.

I just want to be sure my maxed out 401 contributions would LOWER my tax debt so all my Social Security wouldn't be taxed away.

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If you take your retirement benefit before your "full retirement age" and keep working, your benefit will be reduced.  For purposes of this calculation, social security uses your gross wages before retirement contributions.  That means that, if you take your benefit and keep working, your benefit will be reduced by the same amount no matter how much you contribute to the 401k.

Separately, increasing your 401k contribution will reduce your income subject to income tax.  It will not pay off a previous tax debt, but it will reduce the amount of income tax you owe for the year of the contribution.  However, the reduction is only about 1 in 4 or 1 in 5.  For every $1000 you contribute, your income tax will go down by about $220.  But you have removed all that money from your take-home pay, and can't access it until you retire.

In other words, the 401k will still reduce your current year taxable income, like any contribution always will.  But increasing your 401k will not stop your SS benefit from being reduced.

https://www.ssa.gov/benefits/retirement/planner/whileworking.html

[jfcoberly1]

Thank you!  You answered exactly what I was asking because I couldn't make sense of all the publication answers.

I am disappointed but at least now I know, and you told me more that I wasn't aware of regarding actual tax benefit of additional 401K contributions. 

More disappointment but glad I know now.

@opus