May Affect Social Security Taxation
When it comes time to begin taking 401(k) distributions, you’ll have to report those withdrawals as ordinary income. By definition, these distributions will raise your total income and might bump you up into a higher tax bracket.
If you’re living solely on your Social Security benefits, they are likely 100% tax-free. However, if your 401(k) distributions push you into the middle-income or higher-income categories, up to 85% of your Social Security benefits may become taxable.
