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Social Security Disability Benefits and Roth IRAs

On Behalf of | Jul 25, 2022 | Firm News, Uncategorized

Can you invest your Social Security Disability benefits in a Roth IRA?

Roth IRAs are a type of individual retirement account that can allow you to save earned income while allowing that income to grow.  You can withdraw that income at a certain point of time in the future.  Roth IRAs are meant to be used to invest your after – tax  earnings.

Do Social Security disability benefits qualify as earned income to be invested in a Roth IRA?   The simple answer is NO.  Social Security disability benefits are not considered earned income.  However, if you are working part time  and have a source of income in addition to the benefits that you receive every month, this earned income can be invested in a  Roth IRA retirement account.  One caveat to working under substantial gainful employment (the maximum amount you can earn each month and still be considered disabled) is that these earnings might trigger a continuing disability review by Social Security to see if you are actually still medically disabled.  This is a risk undertaken when working while collecting disability.

If you are currently on Social Security disability benefits, you are not prevented by the law from working part time and earning an income. However, you cannot exceed the earning limits imposed on you by the Social Security Administration.  In 2022, the maximum amount that you can earn as a disabled person is $1,350 in gross income.  If your part time work results in earned income that is greater than these limits,  you lose your eligibility for Social Security disability benefits.   You may also be liable for any over-payment in which you were paid benefits and your earnings exceeded substantial gainful activity.  However, if you stay under the substantial gainful activity amount, income  can be invested in a Roth IRA after taxes have applied.  Ensure however that the benefit amount that you receive each month is not included in your retirement fund savings.

Your earned non-benefits income can be an effective way of  accumulating savings,  compounding your earnings, while paying taxes upfront, and leaving you in a position to withdraw that money in the future,  typically after you have crossed the age of 59.