IRA Distributions, Roth Conversion, & Disability

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Jul 31, 2009 3:30 pm

I have a client that is on disability, and he is considering doing a Roth Conversion next year on his IRA. 

 
Wondering if anyone knows if this type of income (from the Roth conversion) will be counted against his "earnings cap" to still be able to collect disability? 
 
What if he doesn't do the conversion, but in a few years is subject to RMDs?  Will the RMDs count towards his income limit to still collect?
 
Thanks in advance. 
Aug 1, 2009 10:19 am

What do you mean by "on disability"?  Is it SSDI or a group or individual DI policy or is it SSI?


What sort of disability is going to get paid to someone 70 1/2 years old?
Aug 2, 2009 9:53 am

iceco1d, I know absolutely nothing about an earnings cap for SSDI.  As far as I know, there isn't one.   Is he able to do any work?  If not, he's disabled.  His unearned income is irrelevant.  When he gets to the point of having RMDs, he'll be too old for SSDI.  If he's collecting RMDs because he inherited an IRA, these would also be irrelevant.

 
They would be relevant if he was collecting SSI as opposed to SSDI.
 
I believe that my post is factually correct, but I would not put complete faith in it without someone knowledgeable backing me up. 
Aug 28, 2009 9:03 pm

Yes, there is an earnings cap with SSDI.  If you go over it, you are screwed!

Proceed with caution!

Make sure your client does not do anything that is categorized as a distribution.  The conversion shouldn't be a problem, but he needs to know that distributions will count against his earning cap and he can (and probably will) lose his SSDI completely.

Aug 29, 2009 10:24 am

MBA2FA, I'm not claiming that you are wrong, but I would like you to show us something backing up what you are saying.

Aug 29, 2009 11:02 am

what kind of $ we talking here ice?  there are strategies he can use to offset his extra income from the conversion.

Aug 29, 2009 1:14 pm

Just to clarify something, there is a small temporary cap of around $900/month.  This is called "SGA" (substantial gainful activity).  The purpose of this is that someone can attempt to go back to work without losing SSDI.  This, however, has nothing to do with income that isn't from working.

Aug 30, 2009 12:14 am
anonymous:

Just to clarify something, there is a small temporary cap of around $900/month.  This is called "SGA" (substantial gainful activity).  The purpose of this is that someone can attempt to go back to work without losing SSDI.  This, however, has nothing to do with income that isn't from working.



Yes, you are right... sorry, i mis-spoke.  I was thinking about SSI.  Here's the deal.  Lots of people on SSDI also qualify for SSI at the same time.  SSI factors in unearned income from any source while SSDI only considers unearned income from specific sources (workers comp, government pensions, etc).

If SSA thinks your rich, they can take away your SSI.  Taxable income may also push someone to a higher tax bracket which could increase tax liability on the SSDI income.