Hello. I have been trying to get an answer to this question and no one seems to be able to help me. I participate in an alternative retirement plan that is considered a 401a. I understand that it is subject to WEP and GPO, and that Social Security will use a formula to calculate the assumed monthly payment to know how much to reduce Social Security payments. Assuming I stop working well before a "traditional" retirement age (let's say I stop at age 50), at what point does Social Security determine the monthly equivalent of the lump sum? Is the formula based on the value of the 401a on the date I separate from the organization, the date of the rollover, or the value on the date at which I start taking withdrawals from those funds? Or some other date? Thanks.

Hi,

Assuming that your 401a is subject to the Windfall Elimination Provision (WEP) and your distributions from the plan won't be paid out in set monthly payments or over a specified period of time, Social Security will treat it as a lump sum amount and will prorate the lump sum to determine a monthly amount for WEP purposes. The proration generally starts effective with the date that you first start to receive distributions from the plan, although a rollover would count as a distribution. The proration period is determined by your age at the time that the distributions begin per the chart in the following section of Social Security's operations manual: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364#c.

GPO (Government Pension Offset) only applies to certain auxiliary and survivor benefits, so you won't need to be concerned with that provision unless your work is for a government agency and you file for benefits on someone else's Social Security record. However, the same basic principles outlined above would be used to calculate any applicable GPO offset.

Our software (https://maximizemysocialsecurity.com/purchase) is programmed to handle WEP and GPO computations including lump sum prorations, so you may want to strongly consider using it to do your planning.

Best, Jerry