How to Collect Disability & Contribute to an IRA

You might be able to contribute to an IRA despite your disability.

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If you have a disability that prevents you from working, there are two types of federal assistance you may qualify for: Supplemental Security Income and Social Security Disability Insurance. When people talk about disability assistance, they don’t usually differentiate between the two. But there are big differences, including whether or not you can contribute to an IRA while receiving your disability benefits.

Supplemental Security Income Versus Social Security Disability Insurance

Supplemental Security Income is for people who are unable to work because of a disability and have little or no financial resources. You wouldn’t qualify for Supplemental Security Income if you had an IRA. You’d have to spend it down first.

Social Security Disability Insurance is also for people who have a long-term disability that prevents them from working. But, unlike Supplemental Security Income, it is not contingent upon need. You can have financial resources like investments or savings and still collect Social Security Disability Insurance. You can even work, to a point, without it affecting your disability benefits under this program. However, your earnings cannot exceed $1,180 per month.

Traditional IRAs and Roth IRAs

There are two types of IRAs: traditional and Roth. A traditional IRA is basically a tax-deferred savings account. You can contribute pretax income and it’s tax-deferred until you withdraw the money. The most you can contribute to a traditional IRA annually is $5,500. It’s $6,500 if you’re 50 or older.

A Roth IRA is the opposite. You contribute to it from taxed income, like your net pay, but withdrawals made when you retire are not taxed. While the cap on Roth IRA contributions is the same as traditional IRAs, additional limits apply. The additional limits are based on the amount of your income, your tax filing status (single, married and filing jointly, or married and filing separately) and your age. These limits fluctuate from year to year so be sure to check the current year’s numbers before deciding what your total annual Roth IRA contribution will be.

The annual contribution limit also applies collectively to all of your IRAs. If you have multiple IRAs, you cannot contribute more than the limit to all of your accounts combined.

IRAs and Supplemental Security Income

You can't have an IRA and collect Supplemental Security Income. To qualify for Supplemental Security Income, you must essentially have no available assets. Any IRA would be considered an asset and would prevent you from being approved for benefits under this program.

IRAs and SSDI

You can collect Social Security Disability Insurance and contribute to an IRA. The catch is that all IRA contributions must come from "earned income.” The IRS defines earned income as money you get from working for someone who pays you, or money earned by owning or running a business or a farm. The IRS does not consider Supplemental Security Income and Social Security Disability Insurance benefits earned income. However, because you can work and earn up to $1,180 per month while on Social Security Disability Insurance, you can contribute some of that to an IRA. In fact, as long as you stay below the IRS’s contribution limits, you can put all your earned income for the year into an IRA.

Spousal Contributions

If you’re married, a working spouse can contribute from their income to your IRA while you’re on disability. The two of you must file a joint tax return. Your spouse can contribute to your IRA in addition to contributing to their own. So, as a couple, you can essentially double your IRA savings. The maximum annual limits of $5,500 or $6,500 per person still apply.

Having a spouse make contributions to your IRA does not change the way the Social Security Administration views the IRA. It’s your individual asset and can therefore affect whether you qualify for Supplemental Security Income. It should not have any effect on Social Security Disability Insurance.

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About the Author

LeDona Withaar has over 20 years’ experience as a securities industry professional and financial manager. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has worked in arts administration and higher education for 18 years. She is currently a teacher and horse rancher.


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