Author Topic: 401k Catch Up Contributions and Social Security  (Read 350 times)

hgjjgkj

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401k Catch Up Contributions and Social Security
« on: February 06, 2019, 07:52:27 AM »
My Dad is pretty old, like mid to late 60s. I believe SS benefit is based on your average income in last 5 years of employment right? If my dad is to make catch up contributions to his 401k, would this  be excluded from his SSI benefit calculation. Not sure if he should try to pay the highest tax possible in his last years of working to maximize SSI or if he should use catch up in his 401k

Boofinator

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Re: 401k Catch Up Contributions and Social Security
« Reply #1 on: February 06, 2019, 08:07:36 AM »
Definitely contribute to the 401k if you can. SS benefit is based off a max of thirty-five years of contributions, all of which are adjusted for inflation. There is almost no scenario where you won't come out far far ahead with the 401k contributions.

https://www.ssa.gov/pubs/EN-05-10070.pdf

terran

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Re: 401k Catch Up Contributions and Social Security
« Reply #2 on: February 06, 2019, 10:34:25 AM »
Definitely contribute to the 401k if you can. SS benefit is based off a max of thirty-five years of contributions, all of which are adjusted for inflation. There is almost no scenario where you won't come out far far ahead with the 401k contributions.

https://www.ssa.gov/pubs/EN-05-10070.pdf

In addition to this, 401(k) contributions are not deducted from the earnings considered by social security which means they will neither reduce your FICA taxes, nor reduce your eventual social security benefit. For proof of this, see boxes 1 and 3 of your W2 which likely differ by the amount of your 401(k) contribution.

Payroll deducted HSA contributions, however, often do reduce the income both taxed and considered for social security.

MDM

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Re: 401k Catch Up Contributions and Social Security
« Reply #3 on: February 06, 2019, 01:53:15 PM »
Not sure if he should try to pay the highest tax possible in his last years of working to maximize SSI or if he should use catch up in his 401k
Probably worth trying one or more of a couple of spreadsheets and a web tool that work well for calculating an individual's benefit:
- The 'SocialSecurity' tab of the case study spreadsheet.
- The Downloadable Social Security Benefit Estimator (repost) - Bogleheads.org.
- Social Security Calculator
« Last Edit: February 06, 2019, 01:56:01 PM by MDM »

BrightFIRE

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Re: 401k Catch Up Contributions and Social Security
« Reply #4 on: February 07, 2019, 10:37:31 AM »
My Dad is pretty old, like mid to late 60s. I believe SS benefit is based on your average income in last 5 years of employment right? If my dad is to make catch up contributions to his 401k, would this  be excluded from his SSI benefit calculation. Not sure if he should try to pay the highest tax possible in his last years of working to maximize SSI or if he should use catch up in his 401k

Having just done my taxes, let me point you to the W2. 1 box shows "wages" that you are taxed on and another box shows "social security wages" - which is the wages with the 401k contributions added back in. So he should max out his 401k, knowing it will not affect his SSI in any way.