How to Collect Disability & Contribute to an IRA

by Eric Bank Google

    The Social Security Administration provides disability benefits when a medical condition prevents you from working. The Social Security Disability Insurance program, or SSDI, pays benefits if you've worked for a required amount of time. Otherwise, you can receive smaller payments geared to your financial need under the Supplemental Security Income program. You might be able to contribute to an individual retirement account while collecting disability benefits.

    The SSA will consider you disabled if you meet three tests. The first is that you can’t do the work you did before. Secondly, the SSA must determine that you can’t adjust to other work because of your condition. Finally, your disability must be expected to be fatal or to extend beyond one year. As of 2013, the SSA won’t consider you disabled if you work enough to earn more than $1,040 a month. The SSA maintains a list of medical conditions that create disability. Even if your condition is not on the list, the SSA may still allow the disability if you condition is sufficiently severe.

    IRA rules limit the amount you can contribute to your taxable income. As of 2013, you can contribute taxable income up to $5,500, or $6,500 if you’re age 50 or older. Disability benefits are not taxable income, so you can’t contribute these to an IRA. If you earn taxable income below the threshold that disqualifies you from disability benefits, you can use this income to fund your IRA. Even though you can’t work, you still may be able to contribute to your IRA if you are married, file a joint return and your spouse works. You must subtract any contributions your spouse makes to her IRA when figuring her taxable income available for your IRA.

    The SSA requires you to have sufficient work credits to qualify for SSDI. The work requirements change from year to year. As of 2013, you need 40 credits, of which 20 stem from earnings in the 10 years that end with the year you became disabled. You can earn four credits a year. Each $1,160 of earnings gets you one credit. However, if you are age 31 or younger, you may qualify for SSDI with fewer credits.

    If you have sufficient work credits, you may be able to collect SSDI benefits for a disabled family member. Your income doesn't disqualify your family member from receiving benefits, and you can contribute that income to an IRA. SSDI offers family benefits to your present or divorced spouse and to your children. Each eligible family member can receive benefits of up to 50 percent of your disability rate. An overall family benefit cap limits total payments. The cap ranges from 150 percent to 180 percent of your disability benefits.

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    About the Author

    Based in Chicago, Eric Bank has been writing business-related articles since 1985, and science articles since 2010. His articles have appeared in "PC Magazine" and on numerous websites. He holds a B.S. in biology and an M.B.A. from New York University. He also holds an M.S. in finance from DePaul University.

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