Retirees who follow the widely cited 4 percent withdrawal rule on a $700,000 traditional 401(k) pull out $28,000 a year. That single distribution can push combined income past the federal thresholds that make up to 85 percent of Social Security benefits subject to income tax. The math is straightforward, but the dollar amounts that trigger it have barely changed since the 1990s, even as typical retirement account balances have grown sharply.
How a $28,000 withdrawal crosses the 85 percent line
Federal law determines how much of a retiree’s Social Security check is taxable through a formula called “combined income,” which adds modified adjusted gross income, nontaxable interest, and half of the annual Social Security benefit. Under Section 86, the base amounts are $25,000 for single filers and $32,000 for married couples filing jointly. The adjusted base amounts, which trigger the higher 85 percent inclusion rate, sit at $34,000 and $44,000 respectively.
A $28,000 401(k) distribution counts as ordinary income and raises adjusted gross income dollar for dollar, as the IRS explains in its pension guidance on annuity and retirement plan income. Add even a modest Social Security benefit of $22,000 a year, and a single filer’s combined income reaches $39,000 before counting any other earnings or interest. That figure clears the $34,000 adjusted base amount, placing up to 85 percent of benefits in the taxable column.
Frozen thresholds and growing 401(k) balances
The core tension is that Congress set these dollar thresholds decades ago and never indexed them to inflation. The IRS publishes annual inflation adjustments for dozens of tax parameters through its Internal Revenue Bulletin. The 2025-45 bulletin, for instance, updates numerous figures for tax year 2026 returns generally filed in 2027. Yet the combined income brackets in Section 86 remain untouched. An SSA policy analysis on the taxation of benefits documented this structural gap, noting how the fixed thresholds interact with the 85 percent taxable maximum over time.
The practical result is that households with 401(k) balances between roughly $400,000 and $900,000, a range that captures a growing share of near-retirees, face a steeper tax bite than earlier generations did with similar purchasing power. A retiree who would have cleared the threshold comfortably 20 years ago now trips it with a routine withdrawal. Because the thresholds are flat dollar amounts, even conservative drawdown strategies can accelerate the point at which Social Security benefits become taxable.
What the IRS calculation actually requires
The IRS and the Social Security Administration jointly produce Publication 915, the authoritative guide for computing taxable benefits. The document, developed with SSA and the Railroad Retirement Board, walks filers through a worksheet that mirrors the combined income formula in the tax code. It asks retirees to list total annual benefits, other taxable income, tax-exempt interest, and certain deductions to determine how much of their Social Security must be included on Form 1040.
For a typical retiree with a $28,000 401(k) withdrawal and a $22,000 annual benefit, the worksheet quickly shows why the 85 percent ceiling is no longer just a theoretical maximum. Half of the benefit, or $11,000, is added to the $28,000 in retirement account income, producing $39,000 of combined income before counting any other sources. That is $5,000 over the single filer adjusted base amount, and additional investment income or part-time wages only widen the gap. The result is that a substantial share of the Social Security benefit is taxed in addition to the 401(k) distribution itself.
To help taxpayers apply these rules, the IRS offers a simplified explanation of combined income and the thresholds that trigger taxation. The agency’s volunteer training materials emphasize that the 50 percent and 85 percent figures do not represent tax rates, but rather the portion of benefits that is pulled into ordinary income. That distinction matters, because retirees sometimes assume that 85 percent taxation means losing most of a check to the IRS, when the actual impact depends on their marginal bracket.
Retirees who want to see the full mechanics can consult the detailed worksheets in Publication 915. Those calculations illustrate how quickly modest increases in retirement account withdrawals can raise combined income once the adjusted base amounts are exceeded. They also highlight the limited options for avoiding the thresholds entirely when most savings are held in pre-tax accounts.
Planning around the thresholds
Because the combined income brackets are fixed, planning often focuses on timing and account mix rather than hoping for future legislative changes. Some retirees accelerate Roth conversions before claiming Social Security, accepting tax on those conversions in exchange for lower required withdrawals later. Others coordinate 401(k) distributions with years of unusually high deductions, such as large medical expenses, to blunt the effect on taxable benefits.
What has changed most since the thresholds were enacted is not the formula, but the typical balance sheet of middle- and upper-middle-income retirees. Larger 401(k) accounts and higher lifetime earnings translate into both bigger withdrawals and larger Social Security checks. With the base amounts frozen, that combination makes it increasingly likely that a seemingly modest 4 percent withdrawal on a $700,000 nest egg will drag most of a retiree’s benefit into the taxable column.
