Although disabled investors may have a much tighter household budget than those who are not disabled, they may also need more income in retirement. While the Internal Revenue Service doesn’t directly bar those collecting disability payments from contributing to a Roth IRA, contribution requirements for may preclude you from using a Roth as the place to keep your nest egg.
To contribute to a Roth IRA, you must have earned income from wages or self-employment activities, and you can’t contribute more than your earnings. Unearned income, such as investment returns or Social Security benefits, is not eligible. The IRS doesn’t track where your Roth contributions came from: If you earn $2,500 in wages and $15,000 from investments, you’re allowed to make a $2,500 contribution using money from any source.
The IRS restricts contributions to a Roth IRA based on income. If you’re single and your 2012 modified adjusted gross income is more than $125,000, or married and your 2012 AGI exceeds $183,000, you’re unable to make a contribution at all. Those who earn less may contribute up to the full contribution limit, subject to phase-outs as income approaches the $125,000 or $183,000 threshold.
The Social Security Administration’s qualifications for Social Security Disability Insurance may make it difficult to meet the IRS’s earned income requirement for contributing to a Roth IRA. Although the SSA allows recipients to work and receive a small amount of income – no more than $1,010 monthly in 2012 – any more than that will be construed as "substantial gainful activity" that may disqualify you from SSDI payments.
If you’re disabled and receive Supplemental Security Income in addition to your disability benefits and work, you may contribute as much income as you earn up to the annual limit. However, your contributions may make you ineligible for SSI benefits, as all SSI recipients must pass a resource test that measures the amount of assets you could liquidate to support yourself. If your total resources exceed the resource limit, you don’t qualify to receive SSI.
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