At 63 He’ll Collect Social Security and Pull $90,000 a Year From His IRA. The Earnings Test Everyone Warns Him About Will Never Touch His Check, Because the Agency Only Counts Wages
Most people assume pulling six figures from a retirement account before full retirement age puts Social Security benefits in the crosshairs of the earnings test, but the SSA's own statute draws a boundary that leaves IRA money completely outside the…
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Take a 63-year-old who claims Social Security in 2026 and also draws $90,000 a year from a traditional IRA. Sooner or later someone warns him that the earnings test will claw back his benefits because he claimed before full retirement age. The earnings test ignores IRA money. The Social Security retirement earnings test counts wages from a job and net self-employment earnings, but not IRA withdrawals. A $90,000 IRA draw leaves the monthly check unchanged.
How the Earnings Test Works and Which Income It Skips
If a beneficiary is under full retirement age for the whole year, the Social Security Administration (SSA) deducts $1 for every $2 the beneficiary earns above $24,480 in 2026. When a beneficiary reaches full retirement age, the limit rises to $65,160, and withholding drops to $1 for every $3. Once a beneficiary reaches full retirement age, the test is listed as “None”.
The SSA spells out what counts. It looks at “only the wages you make from your job or your net earnings if you’re self-employed,” plus bonuses, commissions, and vacation pay. It also states: “We don’t count pensions, annuities, investment income, interest, veterans benefits, or other government or military retirement benefits.” An IRA withdrawal pays out savings and investment growth. No one works to receive it, so it never enters the calculation.
Statute That Locks the Rule In
The Social Security Act sets the rule. Section 203(f)(5)(A) defines an individual’s earnings for the test as “the sum of his wages for services rendered in such year and his net earnings from self-employment”. That definition, written at 42 U.S.C. § 403, does not include IRA distributions, 401(k) withdrawals, dividends, or capital gains.
Who Gets the Wage-Only Treatment
It covers any early claimant who relies on retirement accounts, pensions, annuities, or a taxable brokerage account for income. For anyone born in 1960 and later, full retirement age is 67, so a 63-year-old in 2026 stays under full retirement age all year and falls under the lower $24,480 limit.
Paychecks from work remain fully subject to the test, and a part-time job, consulting contract, or side business that shows a profit counts dollar for dollar. Large IRA withdrawals don’t shield wages that exceed the limit.
Building a $90,000 IRA Income Plan Around the Test
- Claiming cost. Claiming before full retirement age reduces benefits for each early month. At 62, a $1,000 full-retirement-age benefit drops to $700.
- Wage limit. The test reaches only 2026 job or self-employment income above $24,480. The IRA draw can be any size.
- Early-withdrawal penalty. After age 59½, traditional IRA distributions avoid the 10% additional tax.
- Earnings-change reporting. Beneficiaries under full retirement age who expect different earnings must call the SSA at 1-800-772-1213. The agency does not take earnings changes online.
- Required distributions. Under SECURE 2.0, anyone who turns 74 after December 31, 2032, must begin taking required minimum distributions at age 75. Someone born in 1963 falls in that group, which leaves a long window of voluntary withdrawals before RMDs start.
Where the IRA Withdrawals Still Cost Money
Avoiding the earnings test is different from avoiding tax. Under 26 U.S.C. § 86, the IRS adds half of a retiree’s benefits to other income and compares the total with a base amount of $25,000 for single filers or $32,000 on a joint return. Above an adjusted base amount of $34,000 for single filers or $44,000 for joint filers, up to 85% of the benefit becomes taxable income.
The statute sets those dollar figures and makes no inflation adjustment. A $90,000 traditional IRA draw passes both thresholds on its own, so most of this retiree’s benefit would be taxed at ordinary rates.
The second cost is permanent. Benefits withheld under the earnings test get credited back: at full retirement age, the SSA recalculates the benefit to credit months withheld because of excess earnings. The reduction for claiming early stays for life. An IRA-funded retiree avoids the withholding but still takes the smaller monthly check.
The limit moves every year. It rose from $23,400 in 2025 to $24,480 in 2026 and is listed at $25,560 for 2027. That matters only for wage earners. For a retiree living on IRA withdrawals, the relevant figure is the tax bracket each withdrawal lands in.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
