Does an IRA contribution reduce earnings limit when collecting SS benefits pre FRA
I have a client who retired last year and started receiving her social security benefits before her FRA. She has recently started working part time and is concerned about earning over the 2022 limit of $19,560. Assuming she made $25,000 in 2022, would a $7,000 contribution into an IRA reduce her earnings to $18,000, thus remaining under the social security limit? Or is the limit strictly on the earnings and not the net income and she would be deemed in earning $5,440 over the limit and have her benefits reduced by $2,720?
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-26 21:43
The IRA contribution would not reduce her income for purposes of the earnings test. Of course, while SS would reclaim some of her benefit, it is not lost permanently, it is just deferred. She recovers it over many years through a reduction of her early retirement penalty.