Does 401(k) Withdrawal Affect Social Security Disability?

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Are you receiving Social Security disability benefits and wondering whether your 401(k) will impact your disability benefit? For many disability beneficiaries, the loss of work income presents a financial planning challenge. This is due to the fact that Social Security disability benefits do not replace a high percentage of a person’s income. When a worker goes on disability, they often experience a significant reduction in monthly income. Therefore, many people look to 401(k) withdrawals as a potential source of income to help bridge the gap between their work income and their SSDI (Social Security Disability Insurance) benefit amount. 

Disability beneficiaries are by definition younger than 66 or 67 years old because Social Security does not pay disability benefits to those who have reached their full retirement age. Because 401(k) plans allow tax-free withdrawals at the age of 59½, many disability beneficiaries aged 59 to 66 (or age 67 if born after 1960) wonder whether they can supplement their Social Security disability income with withdrawals from a 401(k) or other types of retirement investment accounts. 

The income rules for Social Security disability are complex and confusing, with misinformation surrounding the topic. This article will discuss whether 401(k) withdrawals will impact Social Security disability and Social Security retirement benefits 

(TLDR: Income from a 401(k) will not impact your disability benefit. Read on to understand why a 401(k) withdrawal does not impact disability, and to understand the different types of “income” that impacts SSDI payments). 

Understanding Social Security Disability Insurance

It is important to understand first what Social Security disability is, and the way it is funded. 

Social Security Disability Insurance, or SSDI, is a federal program that offers financial assistance to people who are unable to work due to a disability. SSDI is an insurance type system that workers “pay into” through their FICA taxed earnings. When a worker becomes unable to work due to a disability, they can claim their disability benefit. The monthly disability benefit is calculated based on their unique earnings record from work. The higher the amount of lifetime earnings, the higher the benefit amount.

SSDI benefits are calculated based on a person’s previous earning record, not their current income or assets. Unlike SSI, which is a means-tested, low-income benefit, SSDI does not look into a beneficiaries’ assets when determining eligibility. For example, if Mark Zuckerberg becomes unable to work due to a disability, he can collect a monthly SSDI payment based on his work history (assuming he has paid enough FICA taxes as CEO of Facebook (now Meta) rather than taking out loans against his Facebook shares for his annual income). The value of Zuckerberg’s Facebook shares would not interfere with his SSDI eligibility, because SSDI is not means tested and does not consider the assets of a beneficiary or their spouse. His real estate investments and the income from real estate properties do not count as “earned income” for Social Security disability purposes. 

Similarly, the income and assets of a spouse do not interfere with eligibility for Social Security disability benefits. Assuming Zuckerberg paid enough FICA taxes, he would be eligible to collect SSDI benefits if he is disabled and cannot work. 

If you would like to know more about the SSDI application process, you can consult this dedicated page.

What Is a 401(k), and How Do Withdrawals Work?

A 401(k) is a retirement savings plan sponsored by an employer. An employee who signs up for their employer-sponsored 401(k) plan has a percentage of their paychecks deposited directly into a designated investment account. The employee elects what percentage of their gross income will be deposited into the account. Some employers match the amount contributed to the employee’s 401(k). 401(k) accounts are tax-advantaged, so contributions are pre-tax, thus reducing taxable income. No taxes on the contributions are paid in a traditional 401(k) account until they are withdrawn

Traditional and Roth 401(k) plans are defined contribution plans, meaning that the amounts an employer and employee can contribute are governed by the IRS. For the year 2023, the annual limit on contributions for an employee under age 50 is $22,500. Employees over age 50 can make “catch-up” contributions in the amount of $7,500. In 2024, the maximum amount that an employee under age 50 can contribute goes up to $23,000. 

401(k) plans are beneficial in multiple ways for workers. For instance, they allow workers to reduce their tax burden while simultaneously saving for retirement. Once a 401(k) is set up, the plan allows a worker to make automated retirement contributions. These contributions are invested and may receive returns based on the performance of the markets. 

Does 401(k) Withdrawal Affect Social Security Disability?

A 401(k) withdrawal does not directly affect your Social Security disability benefits because 401k withdrawals are not “earned income” for Social Security purposes. 401(k) withdrawals reflect income from work performed in the past, over the years of a worker’s life of earning and saving. Income from a 401(k) withdrawal is similar to the passive income from real estate or other types of investments, not income from work activities performed in exchange for money. 

In general, disability claimants and beneficiaries are not working and therefore are not earning income through work. The Social Security Administration (SSA) has several tests for determining whether a person is working. Generally, earned income that exceeds $1,470 in the year 2023 and $1,550 in the year 2024 is “working” under SSA regulations. A person applying for disability benefits earning above those figures through work, even if part time, will likely be denied on the basis of the work income. 

Once a disability claimant is approved, the SSA allows for a trial work period for disability beneficiaries to test their ability to work. A beneficiary can work for up to nine months, not necessarily consecutively, and still receive their disability benefit. If a beneficiary uses all of their trial work period months, then the SSA will cease the benefit. 

Note that these rules are meant to incentivize a beneficiary to attempt to return to work. Outside of the trial work period, a beneficiary cannot earn income from work and retain disability eligibility. However, unlike income from performing work-related activities or services, income from a 401(k) is not treated the same as income received for performing work-related activities. Therefore, disability beneficiaries and disability applicants can elect to withdraw from their 401(k) savings without worrying about an impact to their claim for disability or ongoing disability payments. 

However, a lump-sum 401(k) withdrawal could potentially increase your taxable income for the year, which may affect the taxability of your SSDI benefits. If you receive Social Security disability and elect to make 401(k) withdrawals, this 401(k) income will not impact your eligibility for a disability benefit. However, a portion of your disability benefits could be subject to taxes depending on the amount of your combined income from Social Security disability and 401(k) withdrawals.

If you file taxes as an individual and your annual income including the disability benefit is less than $25,000, your disability benefit is not subject to taxes. If you file as an individual and your income for the year is between $25,000 and $34,000, up to 50% of your disability benefits may be taxed. If you file as a single individual and your income exceeds more than $34,000 annually, then up to 85% of your benefit may be subject to taxation.

If you file jointly with your spouse, your benefit is not taxable if your combined income does not exceed $32,000. If you file jointly and have combined income between $32,000 and $44,000, up to 50% of your benefit may be subject to taxation. If you file jointly and your combined income exceeds $44,000, up to 85% of your income may be subject to taxation.

If you are receiving Social Security disability and are considering taking withdrawals on your 401(k), consult a tax professional to understand the tax implications.


Yes, for tax purposes. No, for SSDI “earned income” purposes. In other words, 401(k) withdrawals do not count as earned income for determining whether a disability claimant is working or for determining whether a disability beneficiary is no longer eligible for the benefit due to returning to work. A 401(k) withdrawal does not impact SSDI eligibility one way or another. However, a 401(k) withdrawal may have tax implications for a disability beneficiary, depending on the combined annual income from the SSDI benefit and the 401K withdrawal.

A 401K withdrawal does not impact SSDI eligibility. It may, however, impact tax liability.

Yes. Unlike SSI, which is a means-tested, low-income program that requires an individual to have less than $2,000 in total assets (less than $3,000 for a married couple), the SSDI benefit does not look into the assets of a disability applicant. Because the process for determining Social Security disability eligibility is lengthy, many disability applicants will start taking withdrawals in order to help bridge the gap between the cessation of employment and the approval of Social Security disability payments.

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