Do IRA distributions count as income towards SS eligibility?
I have a client who is currently drawing social security. She just inherited a portion of her ex-husband’s 401k in a divorce and is rolling it over into an IRA of her own. She wants to take some of it out to pay for bills, but is afraid of jeopardizing her social security eligibility by having too much taxable income. I didn’t think that IRA distributions were considered earned income, but I’m not familiar enough with social security eligibility rules to know with certainty. She is currently drawing a small pension from an old job with the state and the local social security office has told her that the pension income DOES count as income towards determining social security eligibility. There’s already very little wiggle room before she loses her eligibility, she’s worried that an otherwise much-needed IRA distribution might cut her off entirely. I told her I’d appeal to the experts to find out the real deal.
Permalink Submitted by Alan Spross on Thu, 2011-07-14 19:54
This sounds like it might be SSI since the issue is eligibility, not just amount. To qualify for SSI all income is considered, not just earned income. Therefore, this is not the “earnings test” which reduces SS benefits for those between 62 and 66 that have earned income.
If it is SSI, then an IRA distribution might disqualify her just as pension income would once a low threshold is reached for qualify for SSI.
What is her age? Remember that if she takes a distribution directly from the 401k under a QDRO, there is income tax but no penalty. If she rolls that 401k over to her own IRA, then the penalty will apply unless she has reached 59.5.
Permalink Submitted by Paul Emig on Thu, 2011-07-14 20:15
She’s 62, so the penalty isn’t the issue. But I guess that would make sense since she’s drawing “early” social security.
Permalink Submitted by Paul Emig on Thu, 2011-07-14 20:18
How about spousal support? Does that count as income? I realize we’re getting away from an IRA question here, but figured I’d ask since you seem to know quite about SSI.
Permalink Submitted by Alan Spross on Thu, 2011-07-14 21:00
It would count. The att’ d shows the few things that do NOT count:
http://www.socialsecuritylawattorney.com/SSI-Benefits.html