What We Know About Keeping Social Security Tax-Free With a $1M 401(k)

A couple with $1 million saved in a 401(k) can potentially keep their Social Security benefits free from federal income tax, according to a report from 24/7 Wall St. The report's core claim is that the sequence of which account a retiree taps first — 401(k), brokerage account or Roth IRA — matters less than the overall mix of taxable, tax-deferred and tax-free income the household reports in a given year.

What did the report find?

The finding, as described in the 24/7 Wall St. piece, is that a couple drawing from a seven-figure 401(k) is not automatically pushed into taxable Social Security territory. Whether benefits get taxed depends on how much of a household's annual income comes from sources the IRS counts toward a Social Security taxability formula, rather than the order in which accounts are drained. The original report is the only source reviewed for this piece, via Google News.

Why would income mix matter more than withdrawal order?

Retirement accounts are taxed differently depending on type. A traditional 401(k) withdrawal is generally treated as ordinary income, while qualified Roth withdrawals are not. Interest, dividends and capital gains from brokerage accounts also count differently than wages or pension income. Because Social Security's taxability formula adds up multiple income streams rather than tracking which account was tapped first, a retiree who diversifies across taxable and tax-free sources in the same year — rather than draining one account completely before touching another — may keep total reportable income lower in any single tax year.

What determines whether Social Security benefits are taxed?

The Internal Revenue Service bases Social Security taxability on a household's combined income calculation, which blends several income types rather than isolating withdrawals by account. The 24/7 Wall St. report frames this as the reason a couple with substantial 401(k) assets can still structure withdrawals to limit taxable combined income, though the report does not specify exact dollar thresholds in the material reviewed for this piece.

What is not yet clear from the reporting?

The uncertainty here is specificity. The source material establishes the general principle — income composition outweighs sequencing — without providing the precise income figures, tax brackets or Roth conversion timelines that would let a specific household model its own outcome. Readers modeling their own retirement income mix should consult a tax professional or the original report directly for any numeric thresholds before acting.

Glossary

Combined income (provisional income): The IRS calculation that adds adjusted gross income, tax-exempt interest and half of Social Security benefits to determine how much of a benefit, if any, is taxable.

Withdrawal order: The sequence in which a retiree draws from taxable, tax-deferred (401(k), traditional IRA) and tax-free (Roth) accounts.

Roth conversion: Moving funds from a traditional retirement account into a Roth account, paying tax on the converted amount in the year of conversion rather than at withdrawal.