USA Funding an IRA WITH A DISABILITY PENISON


Joined
Jan 31, 2021
Messages
8
Reaction score
0
Country
United States
Can a taxpayer contribute to an IRA with income from a disability pension. The disability pension is fully taxable and reported on line 1 of the 1040 . The taxpayer's pension fund reports the income with a 1099R . When the tax payer reaches minimum retirement age , the disability pension will end and be replaced with the regular pension. Is this considered earned income and can the taxpayer use this disability pension to contribute to a traditional IRA
 
Ad

Advertisements

Joined
Aug 10, 2020
Messages
68
Reaction score
5
Country
United States
Of course pensions and annuities are excluded from earned income. Whether a disability pension would fall under different rules I don't know. But I'd say it's doubtful when considering that SSDI is not eligible while still being taxed if the taxpayer's total income is above a certain threshold.

This changes if you have earned income from other sources. In which case IRA contributions can be made on the basis of that income.

https://www.irs.gov/publications/p590a
 
Joined
Jan 31, 2021
Messages
8
Reaction score
0
Country
United States
Of course pensions and annuities are excluded from earned income. Whether a disability pension would fall under different rules I don't know. But I'd say it's doubtful when considering that SSDI is not eligible while still being taxed if the taxpayer's total income is above a certain threshold.

This changes if you have earned income from other sources. In which case IRA contributions can be made on the basis of that income.

https://www.irs.gov/publications/p590a
Not so sure . The IRS allows early disability retirement to count as income to qualify for EITC.

IRS states :
"If you get disability retirement benefits before you reach the minimum retirement age, you must claim the benefits as earned income when you claim the EITC.

To find your minimum retirement age, check your retirement plan. The minimum retirement age is the earliest age you could get disability retirement benefits if you didn’t have the disability.

After you reach the minimum retirement age, your disability retirement payments do not quality as earned income"
 
Joined
Jan 31, 2021
Messages
8
Reaction score
0
Country
United States
That must be what they're referring to when they say:


In their list of what qualifies as earned income.

Earned Income and Earned Income Tax Credit (EITC) Tables | Internal Revenue Service (irs.gov)
Still confusing to me . The IRS incudes as earned income ,"[c]ertain disability benefits you got before you were the minimum retirement age", but does not count pensions as earned income . Are there other early disability retirements other than a pension ? Maybe the distinction is the " before minimum retirement age " ,and any pension before the minimum age is counted as earned income .
 
Ad

Advertisements

Joined
Mar 30, 2021
Messages
1
Reaction score
0
Country
United States
Pensions and annuities, of course, are not used with taxable wages. I'm not sure whether a disability pension will be subject to different laws. However, given that SSDI is ineligible but only be charged if the taxpayer's gross income crosses a certain amount, I'd guess it's impossible.
 
Ad

Advertisements


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top