Supplementing Social Security benefits with disbursements from a traditional individual retirement account may improve your quality of life, but those IRA distributions may affect your benefits. Traditional IRA disbursements will not reduce the benefit amount you receive from Social Security. However, they may cause part of your retirement benefits to become taxable.
Distributions from a traditional IRA are taxed as ordinary income, with the exception of any nondeductible contributions you've made to the IRA. As a result, withdrawing money from a traditional IRA increases your adjusted gross income. If the disbursement pushes your income above a threshold set by the Internal Revenue Service, part of your Social Security benefits become taxable income and must be reported on your tax return. If your income stays below the IRS threshold, your benefits are not taxable and you do not report them when you file your taxes.
To determine if your traditional IRA disbursement will affect your Social Security, add the IRA money, excluding any nontaxable portion, to the rest of your income other than the Social Security benefits. Next, add one-half of your annual benefit amounts to the rest of your income. As of 2012, if the total is more than $34,000 and you file a joint return, some of your benefits may be taxable. If you file as single, head of household, or qualified widower or widow, the threshold is $25,000. Suppose you are single, take $10,000 out of your traditional IRA and have $8,000 in other income, for a total of $18,000. If one-half of your annual benefit is $9,000, this brings the total to $27,000, so part of your Social Security benefits may be taxable.
When a traditional IRA disbursement or other income pushes you over the IRS income threshold, at least 50 percent of your benefits may be taxable. This goes up to 85 percent if you are married and file a joint return and your total income, including half of your benefits, exceeds $44,000. The 85 percent rate applies to those who file as single, head of household, or qualifying widow or widower with total income of more than $34,000.
Taking Early Benefits
You can choose to start getting Social benefits as early as age 62 instead of waiting until you reach full retirement age, which is 66, as of 2012. When you start benefits early, they can be reduced if your earned income exceeds an annual limit set by the Social Security Administration. However, the agency does not count disbursements from traditional IRAs as earned income. Therefore, a traditional IRA distribution will not affect the amount of your benefits when you elect to start them early.