2 parts – Social Security while working and employer sponsored Roth 401K
Hi Terry! Here are my questions –
1. I am 66, taking my social security and currently working part time. I have been offered a full time job and the new employer is willing to work with me on deferring the portion of the salary that is over the annual limit until I reach 66 + 10 months. Can the deferred earnings be paid in the 10th month or should they be held until month 11?
2. I currently have a Roth 401K through my employer. While I hope to roll it over to a similar account, when I do make withdrawals, will I owe taxes on the employer contribution? On the gains / interest above my contribution?
Thanks! Listen to you on WGN multiple times per week – you are giving the audience a huge gift of your time and expertise…and we appreciate it!
Best,
Terry Says
Thanks for that nice note.
Honestly, I’m not sure about how SS will calculate the reduction of benefits on the income you receive in the year you reach full retirement age. There are bound to be mistakes. It is a dollar-for-dollar reduction in benefits, as you know. But since you took SS early, you’re already receiving permanently lower benefits.
The earnings limit for benefit reductions ($2 for every $1 earned over the limit) in 2025 is $23,400 if you have not reached FRA, and $62,160 the year you do. Once you’ve hit FRA, you’ll receive a recalculated benefit that accounts for any withheld payments! It’s a complicated formula that Larry Kotlikoff rails against because the pre-FRA reduction eventually gets made up after you reach FRA!
If you will reach full retirement age in 2025, the $62,160 earnings limit applies to the money you earn before your birthday, with $1 deducted for every $3 over the limit. Beginning the month you become full retirement age, the Social Security Administration will recalculate your benefits to adjust for the reductions from earlier months.
Bottom line: I don’t think it make sense to fool around with delaying payment of wages. But that’s how it works.
And re Roth employer contributions: since they are made with after-tax dollars, as are yours, nothing is taxable when you withdraw. You can roll over to a Roth IRA when you retire and the same non-taxation applies.