Federal tax laws set all kinds of rules about contributions to an IRA. One rule is that you can only contribute a limited amount every year. As of 2013, that's $5,500, or $6,500 if you're over 50. A second rule is that if you can only contribute to an IRA if you earn money.
If your earned compensation for the year is less than the IRA contribution limit, your limit gets lowered. If you work part-time and earn $3,000, that $3,000 becomes your contribution limit. If you don't have compensation, you can't contribute. Compensation includes salary, wages, commissions and self-employment income. The only non-work income that counts is alimony -- not long-term disability. You can't contribute anything you earn that's excluded from taxable income, except for non-taxable combat pay.
One exception to the compensation rule is if you don't work but your spouse does. Tax law lets spouses who file joint returns contribute to each other's IRAs. Suppose you're on long-term disability but your spouse is working and you're both under age 50. If your spouse earns $11,000 or more, as of 2013 she can max out her own IRA contribution and then put $5,500 in yours. If she doesn't have enough compensation, this isn't an option, however.
Lack of income doesn't prevent you rolling over money from one retirement account to another. If you leave your job because of disability, for example, you can roll your 401(k) over to a traditional or Roth IRA. Even if you or your spouse have already maxed out contributions, rollovers are still acceptable. If you transfer 401(k) or traditional IRA assets to a Roth, you pay tax on the transfer. In return, you get to withdraw from the Roth tax-free down the road.
If your IRA is already up and running, disability doesn't change that. There's no requirement that you make a minimum IRA contribution each year, so you can just let it sit there when you have no earnings to contribute. Unfortunately, there's no averaging for contributions. For example, if you're living on disability this year and don't make a contribution, you can't contribute $11,000 next year to make up for the lack.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.