IRAs are increasingly popular retirement savings vehicles. They provide people who do not have access to employer-based plans with more control over their investments an opportunity for savings and retirement planning.
The IRS stipulates that an IRA contribution be based on earned income, but what if your primary source of income is SSDI but also making additional funds by working as a driver for rideshare services such as Lyft? In that instance, would it still count?
IRAs and SSDI
Many recipients of Social Security Disability Insurance (SSDI) depend on income from retirement accounts to supplement their benefits from SSDI, yet withdrawing more can have negative repercussions for some recipients. IRS restricts contributions to IRAs based on your income; however, those married filing jointly are allowed full contributions provided their modified adjusted gross income is under $125,000.
SSDI stands apart from other forms of federal aid by being designed specifically to assist disabled workers who cannot work due to impairment. To qualify for SSDI, an eligibility test determines if you possess financial resources that could potentially support yourself; generally the Social Security Administration counts an IRA held solely in your name as financial resources and may reduce benefits accordingly; any held by other individuals are not counted; lump sum distributions from defined benefit pension plans do not count against SSI eligibility either.
IRAs and SSI
Individual Retirement Accounts, or IRAs, offer tax breaks both when depositing money and withdrawing it in later life.
However, an IRA must only be funded with “earned income,” as defined by the IRS. Earned income includes money you receive from either employment or from running your own business; Social Security Disability payments do not count as earned income so they cannot be invested into an IRA.
If you want to invest your SSI money in an IRA, first reduce your benefits so you are below the federal poverty line. Otherwise, if you invest the money and then find that you need it again to meet daily expenses, investing could prove unwise – leading many people into claiming smaller checks due to investing them early.
IRAs and SSA
Individual Retirement Arrangements, commonly referred to as an IRA, allow people to invest tax-deferred for their futures without incurring penalty at age 59 1/2. IRAs are especially popular with workers who do not have employer-sponsored plans such as 401(k)s or pension accounts.
To contribute to an IRA, both you and your spouse (if filing jointly) must have earned compensation such as wages, salaries, tips commissions or earnings from self-employment; it does not include investment income such as dividends and interest.
No IRA should negatively impact your SSDI benefits unless you work too much; the only time this might happen would be if your earnings exceed what the Social Security Administration considers substantial gainful activity – a limit which typically ranges between $1,350 and $2,260 monthly earnings – disqualifying you from receiving SSDI benefits for six months at once. Therefore it’s vital that you track both earnings and SGA limits throughout the year in which they apply.
IRAs and Disability
If you are receiving SSDI and have a disability, the IRS allows you to avoid paying an early distribution penalty when taking out your IRA withdrawals. Your financial organization must submit documentation that proves this fact – most typically using the fill-in-blank Physician’s Statement in IRS Form 5329 as part of this process.
Social Security Disability Insurance differs from Supplemental Security Income in that its eligibility does not depend on need alone; as long as you can show that any IRA withdrawals made before age 59 1/2 were used for medically necessary expenses or home purchase, then no penalties apply from the IRS for withdrawing this money early. Your IRA withdrawal could affect eligibility for Supplemental Security Income because that program has a resource limit you must pass to be considered eligible; your IRA counts as an asset.
