Investments: An Important Income Source for People With Disabilities

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If you receive Social Security benefits due to a disability, there’s a strict limit on how much income you can earn each month from working before you risk losing your benefits. Still, there’s no limit to the amount of unearned income you can have, which means investments can be a valuable way to build wealth

Key Takeaways

  • If you collect Social Security Disability (SSD) benefits, there’s a limit to how much income you can earn from working. You can lose your benefits if you make too much.
  • For 2021 the income limit is $1,310 per month; it’s $2,190 per month for people who are blind. 
  • There’s no limit to the amount of unearned income you can have, which means you can make money from investments such as stocks and bonds. 

What Is Social Security Disability Insurance?

According to the Social Security Administration (SSA), “Social Security pays benefits to people who can’t work because they have a medical condition that’s expected to last at least one year or result in death.”  

To qualify for disability benefits, you must meet two earnings tests:

  1. A Recent Work Test—This earnings test proves you worked a certain amount of time in the three- to 10-year period (based on age) before you became disabled. 
  2. A Duration of Work Test—This test measures the amount of time you worked over your lifetime. In general, you can subtract the year you turned 22 from the year you became disabled to determine the number of work quarters you need to meet the duration requirement.

In addition to the two earnings tests, the SSA also considers your medical condition, when it started, how it limits your activities, your medical test results, and the medical treatments you’ve received when making its determination. 

If you qualify for benefits, you will continue to receive them until you return to work on a regular basis. If you are receiving disability benefits when you reach full retirement age—67 for people born in 1960 and later—your disability benefits will automatically convert to retirement benefits. The benefit amount will remain the same. 

Income Limits for Social Security Disability Benefits

For 2021 the monthly income limit is $1,310; it’s $2,190 per month for people who are blind. If you can earn more than these amounts, the SSA deems you capable of engaging in “substantial gainful activity,” which prevents you from qualifying for benefits. 

If you work while receiving SSD benefits, you have to report the income to the SSA, no matter how little you earn. During a “trial work period” of up to nine months (not necessarily in a row), you can have unlimited earnings and still receive full benefits. Once the trial work period is over, the SSA will determine if you’re still entitled to disability benefits.

“SSD recipients are allowed to earn some income for a limited time and limited amount, mainly to fully test their potential ability to return to work and leave the SSD rolls,” says David Gantt, an Asheville, N.C., lawyer who handles a large volume of SSD cases. “Once these very limited times and amounts are exceeded, the Social Security Administration will review any reported income and make [an] inquiry and/or an investigation.”  

SSD Benefits and Investment Income

Income can be earned or unearned. Earned income is money you make while actively working, either for an employer or yourself. It includes wages, salaries, tips, bonuses, net earnings from self-employment, contract work, certain royalties, and union strike benefits. This type of income counts against your monthly maximum for SSD eligibility. 

Unearned income is money you make or receive through something other than employment or active work, and it doesn’t count against the monthly income limits. Examples of unearned income include:

  • SSD Benefits
  • Pensions 
  • Gifts
  • Inheritances
  • Dividends
  • Interest

“Some of our clients who receive SS disability checks (SSD) also have investment income from financial documents (stock, trusts, bonds), rental property, or other passive income sources,” says Gantt. 

Keep in mind that if you have investment income, the SSA is likely to want a closer look. “Current technology helps flag questionable investment income info,” says Gantt. “I tell my clients who move in [the] investment arena to expect questions and [a] review.” 

One way to prepare for questions is to use an affidavit. “Financial investments are generally passive by nature. For true passive income earnings, we encourage SSD clients to be prepared to sign affidavits that they took no action on the investment income subject that could convert the income to the earned legal category,” says Gantt. 

Investments that Don’t Jeopardize SSD Benefits

Someone who receives SSD benefits can invest in securities such as stocks, bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs) without jeopardizing their benefits. Dividend income from stocks, as well as other sources of passive income, is OK as far as the SSA is concerned because it’s unearned income. “The key is whether the investment income is earned or not. Passive income is not earned in the legal meaning of SS law and not counted as evidence of an ability to work,” says Gantt. 

Is Real Estate Income Earned or Unearned?

Income from real estate investments can count as earned or unearned, depending on the situation. If you want to invest in real estate, you can buy real estate stocks, funds, and REITs without jeopardizing your benefits, as these investments provide a passive (aka unearned) income source. But what about buying physical real estate, such as a rental property? 

“Actually, ownership of rental property without any activity has been approved and authorized in some cases we handled,” says Gantt. “However, most landlord-owners are also taking actions (remodeling, plumbing, electrical, mowing, etc.) that push resultant income from passive to earned income.”  

Because real estate investments can be a bit of a gray area, “we encourage clients to determine the passive vs. earned income appearance and proof considerations before starting investment income,” says Gantt. “[Our clients] are cautioned that active participation in rental property can lead to a finding that the existing disability has lifted, and [they] are no longer SSD eligible.”  

If you are interested in investing in physical real estate—and preserving your SSD benefits along the way—plan on speaking with an experienced disability attorney who can help ensure that any income remains passive. Otherwise, it’s best to stick with the real estate stocks, funds, and REITs. 

The Bottom Line

If you collect SSD benefits, you can have up to $1,310 ($2,190 if you are a blind person) in earned income each month without risking your benefits. Meanwhile, the estimated average Social Security disability benefit is $1,259 per month, according to the most recent data available from the Social Security Administration (SSA). Combined, that’s $2,569 per month, or almost $31,000 a year—an amount that might fall short of what’s needed to live comfortably. 

Investment income—provided it’s unearned—can offer a valuable opportunity for people with disabilities to buffer their budgets and build wealth. If you have questions about SSD eligibility or need help with affidavits to show you took no action on investment income, contact an experienced disability attorney in your area or online.