Can You Contribute to an IRA If You Are on SSDI?

IRAs are defined contribution retirement plans with defined contributions from both you and/or your spouse, but may require earned income in order to open. They differ from SSI in that an IRA may prevent its recipients from qualifying.

SSDI recipients may earn some side income provided that their activity does not surpass the substantial gainful activity (SGA) limit, currently set at $1350/month in 2022.

Contribution Limits

You are eligible to contribute up to 100% of your earned income into an IRA each year, which includes wages, salaries, tips, bonuses, commissions and earnings from self-employment. Other forms of income don’t count toward this limit such as dividends, interest and capital gains.

If you’re married and filing jointly, each spouse can contribute the maximum allowed contribution amount for that tax year (in 2023 it’s $6,500).

SSDI benefits aren’t means-tested, so your IRA withdrawals won’t have any bearing on them. But it is essential to understand how an IRA or any financial assets could impact eligibility for income-based Medi-Cal, which counts most types of assets and income; check out DB101’s Medi-Cal guide for more details. This program depends on need – having minimal resources is sufficient in qualifying, although having any assets can still make an impactful statement about yourself to an employer or others about you as an employee or applicant! DB101 offers guides covering these programs that you need more details! Unlike SSDI programs which impose financial requirements, eligibility for income-based Medi-Cal is determined based on financial need – though that doesn’t mean accumulating assets.

Earned Income

SSDI recipients who also work part time may be eligible to invest any income they earn into an IRA if their earnings fall below the substantial gainful activity (SGA) limit, currently set at about $1,180 monthly in 2022. Earned income includes wages, salaries, tips, other taxable employee pay and net earnings from self-employment – but does not include alimony, child support payments or disability payments until reaching retirement age.

If you receive Supplementary Security Income (SSI), contributions to an IRA could reduce your benefit payments because SSDI does not consider an IRA financial resources, while SSDI does. As such, SSDI might require that any assets owned in your name be depleted prior to receiving benefits; should this occur then a taxable brokerage account could be more suitable to avoiding SSI limits while adhering to IRS income guidelines.

Roth IRAs

Though IRAs can be useful to most people, those living with disability may find them challenging. If you receive SSDI and have excess funds after covering bills, investing them to get tax breaks may seem attractive but you need to be wary of potential penalties that could impact your benefits.

Assuming you own an IRA, only earnings-based income qualifies for contribution limits. Earned income encompasses salaries, hourly wages, tips, bonuses and self-employment earnings – not unemployment compensation payments or disability payments from Social Security disability plans.

As soon as your income from an IRA exceeds certain thresholds, one-time taxes must be paid based on your modified adjusted gross income (MAGI). Therefore, it is crucial that any additional money be converted into Roth accounts before it enters an IRA account.

Withdrawals

Contributing to an IRA remains possible and the annual limit remains the same; however, the Social Security Administration considers your IRA an asset when determining if you qualify for Supplemental Security Income benefits.

SSA will not penalize you if you take money out of your IRA as long as it falls within its current substantial gainful activity, or SGA earnings limits. If you withdraw more than this amount, your benefits could be temporarily suspended until either they fall back within their SGA limits again or until it determines that you no longer qualify as disabled.

SSDI recipients can work, though the Social Security Administration will closely monitor your earnings to make sure they don’t surpass SGA levels. They may even stop disability payments altogether if your condition improves to the point that performing SGA no longer prevents you from working.


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