ROTH Conversions Affect on SS Disability
I have a client that has a decent amount in an IRA and inherited IRA (around $500K combined). She is 63 with FRA at age 67. She has been on SS disability for the past 10 years due to a workplace injury (that she also received a $100K workers comp payout for 10 years ago and has supplemented her spending with). I would like to try and convert much of the IRA funds into ROTH before she switches to her regular SS at age 67. Do you happen to know if these IRA to ROTH conversions affect SS disability payments in any way? Or how are conversions looked like by SSDI? Thank you!
Permalink Submitted by Alan - IRA critic on Fri, 2023-08-11 15:18
Conversions do not affect the SSDI benefit, but they will may result in up to 85% of the SSDI being taxable since the inherited IRA is most likely subject to annual beneficiary RMDs as well. At 67 the SSDI benefit is not recalculated and will not change other than for SS COLAs or if it was reduced due to receiving WC benefits it would increse, it is simply renamed as a retirement benefit, therefore the only impact of that is that work restrictions that apply to the SSDI would no longer continue to apply. If client is now on Medicare due to being disabled, they would be subject to IRMAA premium surcharges. Therefore, planning on what marginal rate would apply to a conversion now compared to future tax rates must include a projection for IRMAA. Chances are any conversion would have to be modest with an overall goal of paying consistent tax rates and IRMAA for the duration.