A 401(k) withdrawal does not directly impact Social Security Disability Insurance (SSDI) benefits because eligibility is based on disability status and work history rather than income or assets. However, withdrawing funds from a 401(k) could have tax implications. Understanding how withdrawals are structured and whether they count as taxable income can help avoid unintended financial consequences.
If you want professional help navigating financial decisions, consider enlisting the help of a fiduciary financial advisor.
What Is SSDI?
If you qualify for SSDI, the Social Security Administration will pay you a set amount per month. To qualify for SSDI, you need to have a disability that doesn’t allow you to work or engage in “substantial gainful activity.”
A disability isn’t all you need to qualify for SSDI: The Social Security Administration also determines your SSDI eligibility and payment amounts based on your employment. Like other Social Security programs, you must meet certain standards for workplace participation, including having worked long enough and recently enough to qualify.
While SSDI is a safety net for many disabled workers, the payments aren’t substantial. According to the Social Security Administration, the average monthly Social Security benefit for disabled workers in January 2025 was $1,581 – approximately $400 less than the average benefit for retired workers.
How Do Retirement Withdrawals Affect SSDI?
According to the Social Security Administration, there are only two things that would cause your SSDI payments to stop: you are able to go back to work at a level they consider “substantial,” or your condition improves and they determine you no longer have a disability. SSDI is not impacted by unearned income – that is, money that doesn’t come from you working a job – so withdrawals from a 401(k) plan will not affect your benefits.
But there are tax implications that come along with 401(k) disbursements. If you were previously living off of only SSDI, you likely didn’t owe taxes as your income would fall below $25,000. If 401(k) withdrawals or any other form of unearned income put you above the limit, you’ll need to pay income tax.
One note: While there’s usually a 10% penalty for withdrawing from your 401(k) before the age of 59 ½, you can withdraw early if you have a qualifying disability. However, the IRS defines disability differently than the Social Security Administration does. The Social Security Administration defines a disability primarily as a medical condition that prevents you from working. On the other hand, for the IRS to allow you to withdraw from your 401(k) plan early, the disability must be “total and permanent.”
Another interesting note: Once you reach full retirement age (between 66 and 67), your SSDI benefits will cease and automatically convert to retirement benefits.
How SSDI Taxes Work
While SSDI on its own won’t trigger taxes, there is a relatively low threshold at which your benefits may be taxable. Let’s take a look at how that works.
The IRS determines whether you have to pay taxes on your benefits based on a base amount. The base amount is determined by adding up one half of your Social Security benefits and 100% of all of your other income. In 2025, the base amount at which taxes kick in is $25,000 if you’re single, head of household, qualifying surviving spouse or married filing separately and having lived apart from your spouse for the whole tax year. It’s $32,000 if you’re married filing jointly with your spouse. And if you’re married filing separately but have lived with your spouse at any point during the tax year, the limit is $0.
As an example, let’s say you’re a taxpayer filing your taxes as a single person. You receive an SSDI payment of $1,580 each month and withdraw about $1,400 from your 401(k) plan each month using the IRS’ disability exception. You have no other income outside of these two sources. Half of your annual Social Security benefits would be $9,480.
If you add that to the $16,800 you’re withdrawing from your 401(k) for the year, your taxable income comes to $26,280. As a result, you would pay taxes on up to 50% of the benefits that exceed the $25,000 threshold. In this particular example, you would owe tax on just $640 of your benefits.
There used to be another way in which retirement income could impact your Social Security payments. If you receive a pension from a government job but did not pay Social Security taxes while you had the job, your spouse, widow or widower benefits from Social Security were reduced by two-thirds of the amount of your government pension. This offset was known as the government pension offset. However, both the government pension and windfall elimination provision were repealed under legislation that the U.S. Senate passed in December 2024.
Bottom Line
Drawing on your retirement savings, such as a 401(k), won’t impact your SSDI payments. However, if your yearly income, including 401(k) withdrawals, exceeds a set threshold, you may owe taxes on part or all of that income.
Retirement Planning Tips
- For help navigating retirement planning or tax issues, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Social Security benefits depend on your work and income history. Estimate your payments with our Social Security calculator.
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