She Turned $300,000 of Her 401(k) Into Monthly Annuity Checks. Social Security Didn’t Count Them Toward the $24,480 Earnings Limit
She claimed Social Security early, then started converting her 401(k) into monthly annuity checks, and suddenly wondered whether those deposits would eat into her earnings limit the same way a part-time paycheck would.
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Picture a 64-year-old woman who claimed Social Security early and now wants a steadier paycheck from her savings. Through her employer’s plan, she moves $300,000 of her 401(k) into an immediate income annuity. An immediate annuity turns a lump sum into regular payments that begin soon after purchase, often for the buyer’s lifetime. Now a deposit lands in her checking account every month, right next to her government benefit check.
One early claimant left a meeting with a Social Security representative feeling “confused about benefits after reaching the $24,480 limit.” If part-time wages can trigger withholding, it seems fair to wonder whether a monthly annuity check could too.
Social Security Sorts Income by Where It Came From
An immediate annuity is a simple trade. She hands an insurance company a lump of retirement savings, and the insurance company promises her fixed payments under a contract, often for life.
Social Security’s earnings test counts only money earned by working: wages from a job or net profit from self-employment. Payments from pensions and annuities, investment income and ordinary retirement-plan withdrawals generally fall outside it. Her annuity payments come from savings she already built, so they do not count toward the limit. Where the money came from answers the question.
That same logic means she never needed an annuity to get around the test. Ordinary withdrawals from a 401(k) or IRA are generally excluded as well.
Her Part-Time Job Gets Its Own Scorecard
For someone under full retirement age (FRA) for all of 2026, the annual limit is $24,480. Above that, the program deducts $1 for every $2 of what she earns.
If she picks up a part-time job, only that paycheck reduces her allowed earnings. The annuity uses none of her allowance. A worker under FRA who earns $33,400 is $8,920 over the limit, so $4,460 in benefits would be withheld for the year.
Withheld benefits partly come back later. Once she reaches full retirement age, the agency recalculates her monthly benefit to credit the months it held back.
Real Trade-Offs Live Inside the Annuity Contract
Staying clear of the earnings test is a small win. The bigger questions sit in the contract. Forecasts currently put Social Security’s 2027 cost-of-living adjustment (COLA) at 3.5% to 3.6%, although the official figure has not been announced. Her benefit check would rise while a level annuity payment stays flat.
Payouts also vary. The insurance company, her age, the purchase date and add-ons like survivor protection all change the quote, so no single monthly figure applies to everyone.
Taxes are the piece people miss. If she uses entirely pretax 401(k) money, the annuity payments are generally fully taxable as ordinary income. That income also feeds the formula that determines how much of her Social Security is taxable. For a single filer, combined income between $25,000 and $34,000 can make up to 50% of benefits taxable. Above $34,000, that share can rise to 85%. Social Security ignores the annuity for its earnings test, but the IRS does not.
Three Checks Her Monthly Budget Won’t Reveal
- Get the actual quote and read the contract. Confirm the payout, whether it includes any inflation adjustment, what happens to the remaining value if she dies early, and whether a survivor option is worth a smaller check.
- Keep annuity income and work income separate. Only wages and self-employment profit belong in her earnings-test estimate, so she should consider her job income relative to the $24,480 cap by itself.
- Review taxes and access to cash together. Run a tax projection that includes the annuity, then make sure the savings she kept outside the annuity can cover emergencies.
Savings Keep Their Label on Any Schedule
The purchase itself is the hardest step to undo, so the contract deserves more of her attention than the earnings test does. Her savings now arrive on a monthly schedule, and Social Security still treats the payments as retirement income. Withdrawals from savings generally do not count against the earnings limit (If you like the idea of turning a lump sum into something that acts like a paycheck without locking away it inside an insurance contract, we laid out the mix and the payment calendar in a free resource here: The Paycheck Portfolio Method.)
Everyone’s mix of age, income and taxes is different. Running her own numbers before she signs is time well spent.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
