Michael - Your social security benefits may be taxable depending on the level of benefits and your other income. From the social security website:
"You will have to pay federal taxes on your Social Security benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income of more than $32,000. Use the Internal Revenue Service (IRS) Notice 703 shown on the back of the Social Security Benefit Statement, SSA Form 1099, to determine if any of your benefits may be taxable."
WIth regard to traditional 401k accounts, you will be taxed on the value of withdrawals at the time they are made. This flexibility allows you to control, within limits, the timing of your withdrawals and the level of your taxable income. ROTH 401k accounts are not subject to taxation, and are therefore the most effective vehicle for generating long-term, after-tax returns.
There's a calculation required to determine if your Social Security benefits will be taxed, and at what rate. Social Security benefits may be taxable at 85%, 50%, or not at all, depending upon the amount of your "provisional income" - which is all of your other income besides Social Security, plus any tax-free interest that you received during the year. Then you add 1/2 of your Social Security benefit amount to the income figure that you just came up with. If you're married and filing a joint return and that total is more than $44,000 ($34,000 for all other filing statuses), 85% of your Social Security benefit will be taxable. If your provisional income is $32,000 or more ($25,000 for all other filing statuses), 50% of your Social Security benefit will be taxable. If your provisional income is below $32,000, then none of your Social Security benefit is taxed.
Hope this helps -
Michael, adding to James excellent post above, if you have reached your Social Security full retirement age (FRA), you can only be taxed on up to 85% of your Social Security. If you are under FRA, then you can actually have Social Security benefits withheld if your wage earnings exceed certain thresholds.