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Social Security Mailbox

Can I Beat the Social Security Earnings Test?

There's 1 answer to 3 readers' ideas: No

Q. I'm drawing Social Security and still working. I know I can earn up to $14,160 a year before some of my benefits will be withheld. But if I defer earnings over $14,160 into my 401(k) plan, will that keep me below the limit?

Q. If I put any excess income into an employer-sponsored 403(b) plan, will it not count as wages that will put me over Social Security's annual earnings limit?

Q. Can I earn more than the $14,160 limit if I reduce my net income by putting money into an employer-sponsored tax-deferred health plan?

A. My friends, your ideas are ingenious but I am sorry to tell you that the answer to all three questions is no.

See also: What's the best age to claim benefits?

Placing excess earnings into an employer-sponsored 403(b), 401(k) or tax-deferred health plan would not exclude that income from being counted for purposes of the Social Security earnings test.

This is what Social Security counts as earnings:

  • Gross wages for services rendered in the taxable year.
  • Contributions into insurance, annuities or funds that make payments on or after retirement.
  • Net earnings from self-employment.


Some good news

If that's bad news for our three readers, there is some good news in the list of items that Social Security does not count as income.

These include:

  • IRA distributions and 401(k) distributions.
  • Rentals from real estate.
  • Interest and dividends from stocks and bonds.
  • Damages paid under court judgments.

How the penalty works

The earnings limit applies to people between the ages of 62 and full retirement age (currently 66) who receive Social Security benefits and continue to work.

In 2011, you lose $1 in benefits for every $2 earned over the $14,160 limit. In the year that you reach your full retirement age, the system changes for the months before your birthday month: $1 in benefits is deducted for every $3 in earnings above the limit of $37,680.

Once you reach your full retirement age, the earnings limit goes away.

The monetary loss is only temporary. When you reach full retirement age, Social Security will recompute your benefits, with the result that your monthly payments will increase. However, it may take several months for Social Security to complete its computations and issue the higher payments.

For more information about earnings test rules, check out the Social Security Handbook, Chapter 18, Sections 1811 and 1812.

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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