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

An Individual Retirement Account, or IRA, is a tax-deferred savings account available from brokerage firms, mutual funds and banks. Before opening one of these accounts, compare management fees, commissions and minimum opening requirements until you find the provider best suited to you.

SSDI payments may be invested in either a Roth or traditional IRA if they meet IRS earned income requirements of $5,500 to $6,500 per person; however, it’s important to keep in mind how these investments might impact SSA benefits.

Contribution Limits

SSDI benefits won’t be affected by your IRA contributions; the Social Security Administration only considers earned income, which does not include contributions made via an IRA or investment accounts. If you are married, both partners can contribute from their earnings directly into your IRA as long as both files a joint tax return.

However, you cannot use your disability check to fund an IRA; contributions must come from earned income instead, which currently maxes out at $6,500 for those under 50 and $7,500 for those over 50. It may be possible later on to increase contributions when more money comes in from sources other than earned income – for instance working part time at an after school program or making extra cash driving rideshare apps such as Uber or Lyft could result in extra contributions that you could then invest into an IRA for tax benefits.

Tax Deductions

Traditional IRAs enable you to invest pretax income tax-deferred until withdrawals. For instance, if you fall within the 24% income tax bracket, investing $6,500 into an IRA could save $1,560 in taxes; you have until April 15 to fund it or when a federal holiday or disaster declaration extends it further.

Contributions to an Individual Retirement Account must come from earned income; SSDI benefits cannot be used to fund one. A working spouse can, however, contribute to their spousal IRA if filing joint taxes and having enough taxable income; currently this maximum IRA contribution amount per person stands at $5,500 with those 50 years or older being eligible to contribute an extra $6500 contribution limit based on MAGI thresholds; it could phase out depending on participation levels in workplace retirement plans as your MAGI increases.

Roth IRAs

When it comes to IRAs, people on SSDI don’t face any specific restrictions in investing their earned income. For instance, if you work a few hours each month driving rideshare apps such as Uber or Lyft in addition to receiving disability checks, any additional income could potentially be invested into an IRA; however, any withdrawal before age 59 1/2 would incur income tax and possibly incur a 10% penalty fee.

if you are receiving SSDI benefits and your spouse works, both can contribute from their earned income into individual IRAs – effectively doubling your retirement savings! Annual contribution limits of $5,500 (for those age 50 and over) still apply; this can be especially helpful if they make substantial income.

Traditional IRAs

If you are on SSDI and able to work, the Social Security Administration offers programs to allow you to generate additional income above certain thresholds without risking losing your disability benefits. With this money you could invest it into Traditional or Roth IRAs for retirement planning purposes.

Similarly, if your income includes both disability payments and earnings from driving rideshare apps such as Uber or Lyft, the IRS treats this additional income as earned income and allows you to invest it in an IRA. However, if enough funds remain in an IRA to cover two years’ of disability payments from Social Security Administration benefits (SSA), spending some of it down may be required before receiving continued SSI benefits.

Generalized contributions to an IRA cannot exceed the IRS annual limit; for 2023 this figure stands at $6,500; however if you’re over 50 you can add another $1,000 as “catch-up” contributions; any withdrawals once retirement age arrives will be taxed accordingly.

Comments are closed here.