Millions of people get Social Security benefits each year. As a beneficiary, you can continue contributing to your Roth IRA. The Social Security Administration allows you to work and fund your Roth IRA, which can only be funded by incomes earned by working. Distributions you get from your Roth IRA won’t affect your benefit amounts.
Social Security Benefits
You get Social Security benefits if you have accumulated the required amount of work credits plus paid Social Security taxes while you worked. As of 2019, you earn one work credit for every $1,360 you make during the year and can get a maximum of four annually. You generally need 40 work credits but for disability and survivors benefits, you can qualify with fewer credits. There are additional requirements as well for disability as you must have a medical condition that satisfies the SSA’s adult definition of disability. Your benefits are based on your history of earnings.
Roth IRA Distributions
A Roth IRA is tax-deferred retirement plan you can contribute to and save for retirement. This type of retirement plan is funded with after-tax dollars, and distributions are paid out tax-free. While the money is in the account, it grows on a tax-free basis. You can start receiving distributions from your Roth IRA after you turn 59 1/2 without any tax penalties. Distributions received before reaching this age generally result in a 10 percent tax penalty.
The IRS places a limit on how much you can contribute annually. As of 2019, you can contribute up to $6,000 per year if you’re under 50. If you’re older than 50, you can contribute an extra $1,000 per year. The IRS also allows you to make contributions for as long as you’re working.
Effect On Social Security Benefits
Distributions from your Roth IRA plan don’t cause the taxation of your Social Security benefits. The IRS considers certain incomes when calculating your combined income. Such incomes include earnings from work or businesses, and taxable IRA distributions are added to your Social Security benefit amounts. However, since Roth IRA distributions are not taxable income, they won’t increase your combined income. If your Roth IRA distributions and Social Security benefits are your only sources of income, your benefits will not be taxed.
Roth Earned Income Considerations
Your Roth IRA distributions won’t affect your Social Security benefits, but your earned income will. As of 2019, if you’re under full retirement age, you can make up to $17,640 without a reduction to your benefits. Your benefits are reduced $1 for every $2 you earn over this limit. You can make up to $46,920 in the year you reach full retirement age, but only during the months prior to your birthday.
During that same time, your benefits are reduced $1 for every $3 you earn over that amount. After you reach full retirement age, there are no income limits. Also, the amount you make can cause the taxation of your benefits. Up to 85 percent of your Social Security benefits can be taxed at normal income tax rates depending on your amount of earned income.
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