Abstract: The Loess Plateau region is seriously affected by soil erosion, water scarcity, and fragile ecosystems, which severely hinder social and economic development in the region. There is currently a lack of quantitative analysis and research on how human activities will affect the changes in water and sediment on the Loess Plateau and how to allocate the areas for reforestation and grassland restoration. This study focuses on the Beiluo River Basin in the Loess Plateau, analyzing the spatiotemporal variations of precipitation, runoff, water resources, sediment yield and normalized difference vegetation index (NDVI) over the past 20 years. The study establishes a distributed hydrological model for the basin, quantitatively evaluates the impact of returning farmland to forests and grassland on water resources and sediment transport, and explores the optimal land retirement plan under different decision-making conditions. The results show that the total water resources, runoff, groundwater resources and sediment yield in the basin are decreasing, and the annual reductions are 7×10⁸ m³, 1×10⁸ m³, 1.2×10⁸ m³, and 1.6×10⁴ tons respectively. While NDVI and precipitation is increasing, and the annual increases are 0.0064 and 65×10⁸ m³ respectively. The continuous increase in NDVI has resulted in a reduction in runoff volume and sediment transport. Returning farmland to forests and grassland or increasing vegetation density can reduce the amount of runoff and sediment transport, with sediment transport being more sensitive. Considering both the impact on runoff and sediment transport, based on multi-objective optimization, an optimal allocation proposal for the area of returning farmland to forest and grass is proposed. The optimal land retirement area is 28.1%. This study provides decision-making support for ecological environment construction, soil and water conservation, and rational utilization of water and sediment resources in the Loess Plateau region.