Q: I’ve heard that if you earn too much while collecting Social Security that you can be penalized. What happens if I take money out of my IRA or I sell some investments? Will I be penalized then too?
A: You are correct in that people who are receiving Social Security retirement benefits before their full retirement age (66 for boomers retiring now) can only earn a certain amount or their benefits may be reduced. However, this rule applies to earned income only. It does not apply to IRA withdrawals, investments, or any other un-earned income.
In 2013, you can earn up to $15,120 before any of your benefits are reduced. If you earn over that amount, $1 will be deducted for every $2 you earn over the limit.
To give you an example, lets say you earn $13,000 in 2013. This is below the income threshold, so you will not have to pay back any of your benefits. This is true even if you sell $20,000 of stocks or take $10,000 out of an IRA.
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Lynn says
What about money from pensions/retirement plans? Is that considered “earned income”?
THANKS!
kristine says
Good question Lynn. Only wages (including vacation, bonuses, etc.) and self employment income are counted as “earned income”. We don’t count pensions, annuities, investment income, interest, veterans or other government or military retirement benefits. So to answer your question, pension income and/or withdrawals from retirement plans will not penalize you, even if you are under the full retirement age.