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My FRA is 67. I was thinking about starting collecting at 63, I am currently 62 and 8 mos. I know the Earnings penalty limit for 2023 is $21,240 which includes Income earned and half of my SS benefit amount. I have worked out a plan where I can stay below the $25,000 0% taxable income limit by investing in my 401k thereby reducing my taxable Income (AGI). My question is if I contribute enough into my 401k to also stay below the $21,240 earnings limit does that keep me from getting the SS penalty?
You kind of lost me - think you are confusing how SSA measures your earnings if you retire early and the actual penalty if one goes over this amount. The earnings limit is only wages and if you go over that amount, SSA will reduce your benefit accordingly - Read the link. It isn’t based on AGI - it is based on wages or net profits if self employed so adjustments (like IRA contributions) don’t count. SSA.gov Receiving Benefits While Working
I kinda thought that -
Just keep your earnings less than $ 21,240 (2023) - that’s W2 wages or net profit if self-employed. Then SSA will not claw back any benefit dollars.
Your 401K contribution plan won’t work. But contribute anyway - good for the retirement.
I decided to do the 401k to reduce my AGI for tax purposes. I can deal with the whole penalty thing. at least they start giving you that money back when you hit the FRA. In the meantime unless the market dies or the whole dollar thing going on with the China and Russia...."UGH" I'll be saving up some pretty good cash in the 401k also.
@mb35032485 You lost me regarding SS paying you back SS Benefits that were reduced or withheld due to the Earnings Limit. I am providing a link that may help you understand How Work Affects Your Benefits https://www.ssa.gov/pubs/EN-05-10069.pdf This SS pamphlet also appears as a link in the article that Gail provided. The pamphlet on page 7 explains the math regarding how a SS Benefit is recalculated upon attaining FRA. It does not indicate you will be repaid the SS Benefits that were reduced or withheld. Page 7 uses a reduced SS Benefit of $910 payable at age 62 (70%) which has been withheld due to the Earnings Limit for 5 years, ages 62 through 67. This amounts to a loss of SS Benefits in the amount of $54,600 ($910 X 60 months). Upon FRA, the SS Benefit is recalculated and is $1,300 (100%). There is no repayment of the $54,600. Those SS Benefits are lost. Please note that the SS Benefit at FRA is the amount that would have been payable anyway if the person delayed their SS Benefits to FRA.
Just think about the repayment concept. If that were true, I believe everyone would start their SS Benefits early at age 62 and continue working even if their Earnings from working reduces their SS Benefit to zero. The reason that would occur is because everyone would receive those reduced benefits at FRA. It would be similar to winning a lottery. Hope this helps.
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