Can You Have Investments While on SSDI?
SSDI recipients can have investments, so long as they do not count as passive income. Common investments include savings accounts, brokerage accounts and Roth IRAs – although special savings options such as ABLE accounts, individual development accounts or the PASS program don’t impact asset limits for SSDI benefits.
Tax-Free Qualified Withdrawals
Disability beneficiaries face many financial hurdles due to lost work income; however, there may be ways for them to offset these lost earnings. The Social Security Administration does not consider unearned investment income an impediment to eligibility, permitting disability beneficiaries to access their 401(k) accounts without impacting SSDI payments.
However, the IRS levies taxes and penalties on withdrawals that don’t comply with specific criteria; this taxation serves to discourage people from misusing long-term savings vehicles as ways of dodging taxes.
If you are on SSDI and exploring investing for retirement accounts, SmartAsset’s free tool matches you with qualified advisors in your area who can answer your questions and develop a plan to help reach your goals. Start the process now to receive up to three advisor matches (if one of those advisors becomes your choice, we may receive compensation.).
No Limits on Unearned Income
Social Security Disability Insurance differs from Supplemental Security Income in that it does not set limits on how much unearned income beneficiaries may receive in gifts of cash, investments, inheritance and rental property profits and bank account interest payments. Workers’ Compensation, some state disability benefits and certain government pensions or retirement payments do not qualify under Social Security Disability Insurance’s provision of unearned income benefits to beneficiaries.
Building wealth under Social Security Income (SSI), however, can be more of a challenge as its income and asset limits could result in the loss of benefits. Luckily, there are ways around these limits.
One option for saving beyond Social Security limits is using a Plan to Achieve Self-Sustainment (PASS) account, similar to 529 plans but designed specifically to allow SSI beneficiaries. A lawyer could also request an administrative law judge hearing and present new evidence supporting your claim for benefits.
No Limits on Brokerage Accounts
Brokerage accounts are general investment accounts offered by brokerage firms that allow individuals to purchase and sell securities like stocks, bonds, mutual funds and exchange-traded funds. Unlike retirement accounts like an IRA or 401(k), there is no limit to how much an individual can invest. It should be noted, however, that investment gains count as income which could impact Social Security benefits eligibility if income thresholds are exceeded.
Other savings and investment accounts such as health savings accounts (HSAs), 529 college saving plans and ABLE accounts provide tax-advantaged assets that don’t count against your SSA income limit – these accounts offer excellent ways of increasing wealth while still receiving SSDI payments.
No Limits on Roth IRA Accounts
Though IRA accounts may not be allowed under Social Security Administration income guidelines, there may still be ways around them that may enable you to invest while on SSDI. There may be various strategies that work for you such as using a backdoor Roth IRA or opening up a taxable brokerage account.
While on SSDI, another way of investing can be through robo-advisor services. These specialized providers will invest your post-tax earnings and build you a diversified portfolio while charging very minimal fees.
At first, it’s essential that you respect the Social Security Administration’s substantial gainful activity limit. Exceeding it may result in an audit of your disability status and disqualification from receiving monthly payments from SSDI. Before working while receiving SSDI benefits, be sure to speak to a financial advisor or representative and see how their decisions may impact both SSA benefits as well as any additional sources of income that you might have.
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