If you own an individual retirement account, or IRA, the funds in the account may be withdrawn without penalty after you reach age 59 1/2. With a traditional IRA, you pay income tax on the distributions. With a Roth IRA, the distributions are tax-free. Taking an IRA distribution will affect the account balance, but it has no affect on your Social Security benefits.
IRAs allow you to invest for retirement. You can invest the funds in a wide variety of holdings, from stocks to bonds to mutual funds. If you own mutual fund shares in an IRA, then any distribution you request might force the IRA administrator to cash in some or all of your fund shares. You may choose which investments to liquidate, if necessary.
Social Security Benefits
If you are drawing Social Security benefits, you receive a monthly check or electronic transfer to your bank. Your benefit does not depend on your assets in a retirement account. Social Security calculates the benefit from the amount of Social Security taxes that you and your employers paid during your working years. Taking a distribution from an IRA will have no effect on your Social Security benefit, whether you are receiving retirement or disability benefits. The benefit amount remains the same from month to month, with an annual adjustment for any cost-of-living increase by the federal government.
If you have earned income in addition to your Social Security benefits, you might have to pay income taxes on those benefits, depending on your filing status and income level. The IRS includes taxable distributions of IRAs in the calculation of any tax levied on Social Security benefits. If you own a traditional IRA, you will also pay income tax on any investment gains in the account, plus a 10 percent penalty if you withdraw money before you turn 59 1/2. With a Roth, you pay no income tax on distributions, and no penalty or tax if you withdraw only your original contributions before 59 1/2. Non-taxable distributions from a Roth do not count toward the income calculation for tax on your Social Security benefits.
If you draw from your IRA, you will receive a transaction statement from your account administrator showing the amount of money distributed to you, as well as any liquidations of mutual fund shares in the account. The Social Security benefit you receive from the government is not included in your IRA; it is paid to you directly, and you are free to spend or invest the money as you see fit. Social Security disability benefits continue until you reach full retirement age, which depends on the year of your birth. Retirement benefits continue until you die.
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