Does an IRA Distribution Count As Income to Social Security?

Social Security provides benefits to millions of older Americans, but many retirees also count on retirement nest eggs in accounts like IRAs to help supplement their financial needs. Many Social Security recipients worry that taking IRA distributions could have an impact on the benefits they receive.

There are two situations that raise red flags for Social Security recipients, but only one of them can actually result in a financial hardship. Let's look more closely at these two situations to find out what you need to know -- and if you'd like to know even more about IRAs once you're done here, check out the Fool's IRA Center.

Situation 1: IRA income will not make you forfeit your benefits.
The first situation in which the Social Security Administration looks at your income is when you take benefits before you reach full retirement age while you're still working. Earnings above certain threshold amounts that vary from year to year will trigger a loss of Social Security benefits. For instance, for 2015 and 2016, if you are younger than full retirement age all year, and earn more than $15,720, then you'll lose $1.00 in Social Security benefits for every $2.00 you earn above that amount.

The important thing to understand here, though, is that even though distributions from IRAs can increase your taxable income, they're never counted for purposes of benefit forfeiture. As a result, you can withdraw as much as you want from traditional or Roth IRAs without jeopardizing your monthly benefit checks.

Situation 2: IRA income can result in some of your Social Security benefits getting taxed.
The other situation where your income matters is in determining whether your Social Security benefits are subject to income tax. Here, the IRS takes half of your Social Security benefits, and then adds in all of your taxable income plus certain items like tax-exempt municipal bond interest. If the resulting total is above certain thresholds -- $25,000 for single filers and $32,000 for joint filers -- then a portion of your benefits will be subject to tax.

In determining your income, traditional IRA distributions that are included in your taxable income are counted toward whether you hit the income threshold for Social Security taxation. Therefore, in some cases, taking a larger IRA distribution can result in paying higher taxes on your Social Security.

Roth IRA distributions, on the other hand, aren't counted for these purposes. You can therefore take unlimited Roth IRA distributions without having any impact on the taxation of your Social Security benefits. For that reason, many advisors recommend carefully weighing withdrawals from different retirement accounts to minimize your overall tax bill.

IRA distributions won't directly affect your Social Security benefits. Because of the way the tax laws work, though, they can lead to higher taxes if you don't take steps to avoid them.

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