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 Post subject: Investing While on Disability
PostPosted: Sun Dec 02, 2012 2:19 pm 

Joined: Sun Dec 02, 2012 2:13 pm
Posts: 3
Does anyone know if I am allowed to invest in a Roth IRA while on disability (private LTD insurance + social security insurance) or invest in any kind of tax advantaged retirement plan?

Thanks.


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 Post subject: Re: Investing While on Disability
PostPosted: Sun Dec 02, 2012 3:29 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5285
That's a tricky question.

You must have earned income to contribute to any kind of IRA.

Social security benefits are not earned income.

But disability payments from a private plan MIGHT be earned income depending on who paid the original premiums. If your employer paid the premiums or if they were paid before taxes then the benefits might be considered earned income and that would enable you to contribute to an IRA.

You will probably need to contact your employer and your insurance company to make the determination. There is no general rule about whether private disability insurance payments are earned income.


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 Post subject: Re: Investing While on Disability
PostPosted: Tue Dec 04, 2012 12:15 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I also suspect that any disability benefit that is taxable is done via a 1099.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Investing While on Disability
PostPosted: Tue Dec 04, 2012 12:53 pm 
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Bichon Frise wrote:
I also suspect that any disability benefit that is taxable is done via a 1099.


Yes. The problem is, it's not just a matter of being taxable. It has to be earned income. Sometimes when you receive rents or various types of investment income it is reported on a 1099 but those things are not earned income. Starting this year a lot more payments will be 1099-ed but that does not make them earned or even necessarily taxable.


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 Post subject: Re: Investing While on Disability
PostPosted: Tue Dec 04, 2012 5:08 pm 

Joined: Fri Jun 25, 2010 3:06 pm
Posts: 81
On the bright side, you don't need a retirement account to invest. And if your income is low enough, it won't save you much on taxes anyway.


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 Post subject: Re: Investing While on Disability
PostPosted: Wed Dec 05, 2012 11:45 am 
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nelson wrote:
On the bright side, you don't need a retirement account to invest. And if your income is low enough, it won't save you much on taxes anyway.


Not true. Disability payments generally stop at retirement age. SS disability also stops but converts to SS retirement which is mostly a wash. If you want to continue your total income including the disability insurance payments you will probably need to invest just like you do while working.


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 Post subject: Re: Investing While on Disability
PostPosted: Thu Dec 06, 2012 10:37 am 

Joined: Fri Jun 25, 2010 3:06 pm
Posts: 81
DoingHomework wrote:
nelson wrote:
On the bright side, you don't need a retirement account to invest. And if your income is low enough, it won't save you much on taxes anyway.


Not true. Disability payments generally stop at retirement age. SS disability also stops but converts to SS retirement which is mostly a wash. If you want to continue your total income including the disability insurance payments you will probably need to invest just like you do while working.


What you said doesn't match up with what I said. I said you don't need a retirement account to invest. The implication being you can invest in a normal non-retirement taxable account.


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 Post subject: Re: Investing While on Disability
PostPosted: Thu Dec 06, 2012 12:00 pm 
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nelson wrote:
DoingHomework wrote:
nelson wrote:
On the bright side, you don't need a retirement account to invest. And if your income is low enough, it won't save you much on taxes anyway.


Not true. Disability payments generally stop at retirement age. SS disability also stops but converts to SS retirement which is mostly a wash. If you want to continue your total income including the disability insurance payments you will probably need to invest just like you do while working.


What you said doesn't match up with what I said. I said you don't need a retirement account to invest. The implication being you can invest in a normal non-retirement taxable account.


Ok, I thought you were saying that someone on disability does not need to invest for retirement - the implication being that the disability payments continue forever. I guess I misunderstood you.

But even so, although you can invest in a regular taxable account while on disability, one could gain similar tax benefits by using tax-deferred accounts instead, although the tax benefits would presumably be lower since the income would likely be lower.


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 Post subject: Re: Investing While on Disability
PostPosted: Thu Dec 06, 2012 1:59 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
nelson wrote:
DoingHomework wrote:
nelson wrote:
On the bright side, you don't need a retirement account to invest. And if your income is low enough, it won't save you much on taxes anyway.


Not true. Disability payments generally stop at retirement age. SS disability also stops but converts to SS retirement which is mostly a wash. If you want to continue your total income including the disability insurance payments you will probably need to invest just like you do while working.


What you said doesn't match up with what I said. I said you don't need a retirement account to invest. The implication being you can invest in a normal non-retirement taxable account.


You should read the 2013 tax laws as they stand now.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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