| Roth IRA Contributions for 2023 | ||
|---|---|---|
| If your filing status is… | And your modified adjusted gross income (MAGI) is… | Then you can contribute… |
| Married filing jointly or qualifying widow(er) | Less than $218,000 | Up to the limit |
| Married filing jointly or qualifying widow(er) | $218,000 to $228,000 | A reduced amount |
| Married filing jointly or qualifying widow(er) | Greater than $228,000 | Zero |
| Married filing separately and you lived with your spouse at any time during the year | Less than $10,000 | A reduced amount |
| Married filing separately and you lived with your spouse at any time during the year | $10,000 or greater | Zero |
| Single, head of household, or married filing separately and you did not live with your spouse at any time during the year | Less than $138,000 | Up to the limit |
| Single, head of household, or married filing separately and you did not live with your spouse at any time during the year | $138,000 to $153,000 | A reduced amount |
| Single, head of household, or married filing separately and you did not live with your spouse at any time during the year | Greater than $153,000 | Zero |
Source: Internal Revenue Service
Contributions made to a workplace retirement plan do not affect the amount that you can contribute to a Roth IRA.
Social Security Disability Payments and Roth IRAs
Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) are two federal programs that provide financial assistance to eligible people with disabilities. The former pays benefits to people with disabilities who are insured, meaning that they’ve worked and paid into Social Security. The latter pays benefits to adults and children with disabilities who have limited income and financial resources.
Would either one count as income to contribute to a Roth IRA? Under IRS rules, disability payments received from Social Security do not constitute earned income. This means that if Social Security disability payments are your only source of income, you would not be able to use that income to qualify for a Roth IRA.
However, if you have other earned income aside from them, then you may be able to contribute to a Roth, assuming that you’re within the IRS income guidelines. The IRS won’t specifically ask whether you used earned income or Social Security disability payments to invest in a Roth IRA.
Aside from Social Security disability payments, other income received from military disability pensions is also excluded as earned income and there is an exception for other forms of disability benefits received before reaching full retirement age.
Married couples can open and make contributions to a spousal IRA, which is in the name of the spouse without taxable earned income but is funded by the spouse who has earned income.
Social Security Disability Earning Limits
SSDI benefits are designed to help people who are unable to work because of a disability. If the Social Security Administration (SSA) determines that you no longer meet the definition of disabled, then your benefits may cease. You also can be excluded from qualifying for benefits if you have earned income that’s related to the substantial gainful activity (SGA).
For 2023, your earnings from work cannot average more than $1,470 per month if you receive disability benefits. This amount increases to $2,460 if you’re legally blind. For 2024, these limits increase to $1,550 and $2,590, respectively. Once income exceeds these levels, the SSA no longer considers you to have a qualifying disability.
What this means is that if you want to invest your Social Security disability payments, you can technically work to meet the earned income requirement for a Roth IRA; however, you have to closely monitor your earnings to avoid going over the allowed thresholds or risk losing your disability benefits.
SSA income guidelines to determine eligibility for SSI payments differ from those for SSDI benefits.
You could, however, open a taxable brokerage account without having to be concerned about income guidelines. You would lose the advantage of tax-free qualified withdrawals, but this could be a workaround if you hope to invest your SSDI payments. Unlike SSI payments, you’re not limited as to how much you can have in financial resources and still receive disability benefits.
There are also no limits on how much you can invest each year, as there would be with a Roth IRA. Capital gains are taxable when selling investments in your brokerage account at a profit. You can take advantage of the lower long-term capital gains tax rate by holding assets for at least one year before selling them. A brokerage account may also offer a broader range of investment options, including stocks, bonds, mutual funds, cryptocurrency, and initial public offerings (IPOs).
Can You Invest Social Security Disability Money?
Social Security Disability Insurance (SSDI) benefits are not affected by the amount that you have in financial resources, so you could invest them to build wealth for retirement.
Does Supplemental Security Income (SSI) Count as Income for a Roth Individual Retirement Account (Roth IRA)?
Supplemental Security Income (SSI) and SSDI benefits do not count as income for a Roth individual retirement account (Roth IRA). To contribute to a Roth account, the Internal Revenue Service (IRS) requires savers to have earned income.
Is It Illegal to Trade Stocks While on SSDI?
As the Social Security Administration (SSA) doesn’t place any restrictions on financial resources when receiving SSDI payments, you may trade stocks and other securities legally if you’re receiving those benefits.
Can I Withdraw Money From My IRA If I’m Disabled?
If you become totally and permanently disabled, you can withdraw money from an IRA without triggering a tax penalty. This rule applies to both Roth and traditional IRAs, as well as 401(k) accounts.
The Bottom Line
No set rule prevents you from investing in Social Security disability payments if you’re receiving SSDI. There are, however, restrictions on when you can invest that money in a Roth IRA. If you don’t meet the earned income requirement for an IRA, you may need to consider other ways to invest, such as a taxable brokerage account or an annuity.
Correction-Oct. 10, 2022: This article has been corrected from a previous version that erroneously included the phrase “disability retirement” to describe social security disability payments. In fact, disability benefits and retirement benefits are distinct benefit programs.