Ask Terry Questions Disability and savings — impact of an IRA

Disability and savings — impact of an IRA

By Terry Savage on October 02, 2018 | Wild Card

our daughter is on Social Security Disability Income and collects about $800 a month from SSDI. Before she became unable to work she had socked $away in a Roth IRA , about $18,000. We have just set up an Irrevocable self settled trust for her and the lawyer told us she can no longer have the Roth IRA, and must spend it down or the Gov’t will take it away. Our accountant disagrees, saying the Roth is essentially a trust within the trust. We are afraid to ask Soc. Security to weigh in but want to follow the law. Can you help? Thanks!

Terry Says

This is such a complex question that I had to do a bit of research. And I’m glad I did. I’m going to cut and paste a terrific explanation that is on the Motley Fool website, and I will also give you a link. Basically it depends on whether she is receiving Social Socurity Disability Income or SS Supplemental insurance. And I suspect that is why you re getting different answers. Read this:

Many people who suffer disabilities rely on government programs for assistance. The Social Security Administration is involved in two different programs — Social Security Disability Insurance and Supplemental Security Income, both of which can help those suffering from a disability. However, those who have IRAs or receive distributions from an IRA can have their disability benefits affected. Let’s look at the different rules that apply to each program.

Social Security Disability Insurance: no impact
The Social Security Disability Insurance program pays benefits to those who have a long-term disability that prevents them from working. The program is not means-tested, and you can receive benefits regardless of how much income you have from non-work sources like investments or how much in financial resources you have set aside.

As a result, owning an IRA or taking distributions from it won’t have an impact on how much you get from the Social Security Disability Insurance program. As long as you’ve worked long enough to be eligible to receive disability benefits and you are unable to generate income from work over a relatively low threshold amount, then you can take IRA distributions and still get full disability benefits at the same time.

Supplemental Security Income: big impact
By contrast, the Supplemental Security Income program is designed for low-income individuals with little or no financial resources. If you have access to an IRA in your own name, then the SSA can treat it as a financial resource that’s available to you, and it can require that you spend down your IRA funds before you can become eligible to receive SSI disability benefits.

In addition, even if the IRA itself isn’t treated as your financial resource, any income you receive from it can count as a financial resource on its own. For example, if you inherit an IRA and it distributes money to you, then the SSA can reduce or suspend benefits accordingly as long as that money is available to you.

Here is the link to the Motley Fool page.



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