Can You Have Investments While on SSDI?
Social Security Administration (SSA) regulations regarding financial resources depend on your type of disability; typically SSDI benefits do not change based on unearned income such as investment interest.
However, rental income from real estate could count as earned income; therefore it’s essential that you understand the boundaries and restrictions of your financial investments while on SSDI.
IRA Accounts
Traditional, Roth and SEP IRA accounts provide tax benefits when saving for retirement, providing tax-free withdrawals at retirement age. SSDI recipients don’t have access only to this type of account though – there are other investment vehicles they may use instead.
Brokerage accounts allow individuals to purchase and sell stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate and other investments without violating Social Security Disability Income rules as these investments typically do not generate income.
Savings accounts, commonly used as emergency funds, could be considered income by the Social Security Administration and disqualify an applicant from SSDI eligibility. But certain forms of savings accounts, like Certificate of Deposits (CDs), may remain safe from scrutiny by SSA officials – these accounts are held with banks and offer fixed interest rates over an indefinite timeframe; making them far less risky than stock or bond investments while offering short-term savings goals.
Tax-Free Qualified Withdrawals
Many individuals on Social Security Disability Income must supplement their disability payments with income from other sources. Retirement investment accounts such as IRAs and 401(k)s can often serve this purpose – as long as you cannot work at levels considered substantial by Social Security Administration, withdraws will not adversely impact disability benefits.
Taxes will apply when making certain withdrawals from these accounts, such as required minimum distributions (RMD) that are triggered by age (72 to 75) if they’re not initiated at an earlier point, and withdrawals for unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
However, withdrawals made to purchase or construct your first home, and qualifying higher education expenses withdrawals may not incur the 10% penalty. Please contact your tax advisor for more information.
Brokerage Accounts
There are countless books, websites, and TV programs offering advice about investing, but most are tailored towards people with substantial disposable income. This can make investing difficult for those living on Social Security disability benefits since there are strict limits on how much earned income one can have without risking their SSDI benefits.
Brokerage accounts are investment accounts offered through brokerage firms that enable customers to buy and sell securities such as stocks, bonds and mutual funds. While not IRA accounts per se, brokerage accounts allow those on SSDI benefits to build wealth for retirement as the assets don’t count against benefits calculations.
Other investments could also qualify as passive income and may impact SSDI benefits, including rental property or royalty payments for intellectual property use. Under these circumstances, selling the investment might be necessary to prevent a reduction of monthly SSDI checks.
Real Estate
As is well-known, the Social Security Administration (SSA) sets financial limits for individuals receiving disability payments from them, exceeding which can result in the suspension or reduction of disability payments. As such, it’s vitally important to understand how assets such as investment and savings accounts affect eligibility for SSDI.
The Social Security Administration defines income as either earned or unearned. Earned income includes wages, salaries, tips, bonuses, net earnings from self-employment or contract work and certain royalties; unearned income such as rental income or dividends from investments (like real estate syndications ) would not fall under this definition.
SSDI rules generally consider owning rental properties as unearned income; however, offering services beyond regular care and maintenance could constitute substantial gainful activity which disqualifies you from receiving SSDI benefits – so it is crucial that your plans be discussed with an experienced disability attorney beforehand.
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