Can You Invest While on SSDI? What You Need to Know

Receiving Social Security Disability Insurance (SSDI) provides financial support for those unable to work due to a disability, but many recipients wonder if they can invest without jeopardizing their benefits. Since SSDI eligibility is based on work history rather than financial need, there are no asset limits like those in Supplemental Security Income (SSI). However, investment income can still affect taxes and reporting requirements, making it important to understand how different types of earnings interact with SSDI rules.

Distinguishing Earned vs. Unearned Income

The Social Security Administration (SSA) categorizes income as either earned or unearned. Earned income includes wages, salaries, and self-employment earnings—any compensation received for work. This type of income is subject to substantial gainful activity (SGA) limits, which in 2024 are set at $1,550 per month for non-blind individuals and $2,590 for those who are blind. Exceeding these thresholds can trigger a review of disability status and potentially lead to benefit termination.

Unearned income, including dividends, interest, rental income, and capital gains, does not count toward SGA limits. This means SSDI recipients can receive investment returns without affecting their benefits. However, some unearned income, such as private long-term disability insurance payments, may reduce SSDI benefits through offset provisions.

Tracking Investment Earnings

SSDI recipients should keep records of investment earnings for tax and reporting purposes. While investment income does not impact SSDI eligibility, understanding how different types of returns are taxed can help with financial planning.

Dividends are classified as either qualified or non-qualified. Qualified dividends are taxed at the long-term capital gains rate, which ranges from 0% to 20% depending on taxable income. Non-qualified dividends are taxed as ordinary income. Interest income from bonds or savings accounts is also taxable.

Capital gains arise from selling investments at a profit and are categorized as short-term or long-term. Short-term gains, from assets held for one year or less, are taxed at ordinary income rates. Long-term gains, from assets held longer than a year, receive lower tax rates.

For those investing in real estate, rental income must be tracked separately. Expenses such as depreciation, maintenance, and property taxes can offset rental income, reducing taxable earnings. Mutual funds and exchange-traded funds (ETFs) may distribute dividends and capital gains, which must be reported even if reinvested.

Applicable Tax Considerations

Investment income can affect the taxation of SSDI benefits. While SSDI itself is not means-tested, the IRS taxes benefits if total income exceeds certain thresholds. In 2024, individuals with a combined income (adjusted gross income plus nontaxable interest and half of SSDI benefits) between $25,000 and $34,000 may owe tax on up to 50% of their benefits. Those exceeding $34,000 could see up to 85% of benefits taxed. For married couples filing jointly, these thresholds rise to $32,000 and $44,000.

Tax-advantaged accounts can help manage taxable income. Roth IRAs allow tax-free withdrawals, which can prevent combined income from exceeding taxable SSDI thresholds. Traditional IRAs and 401(k)s, however, generate taxable distributions that could increase tax liability. Strategic withdrawals from different accounts can help minimize taxes.

State taxation varies. Some states follow federal guidelines, while others exclude SSDI benefits from taxation. Currently, 12 states tax SSDI to some extent, including Colorado, Connecticut, and Minnesota. Checking state-specific rules is important for accurate tax planning.

Reporting Obligations

SSDI recipients investing in stocks, bonds, or other assets must report investment income to the IRS. While SSDI benefits are not affected by asset levels, failing to report taxable earnings can lead to penalties or audits.

The IRS requires taxpayers to disclose investment income using forms such as the 1099-DIV for dividends and the 1099-INT for interest income. Brokerage firms automatically report investment transactions, so discrepancies can trigger scrutiny. Capital gains and losses must be documented on Schedule D of Form 1040.

High-income investors may also be subject to the Net Investment Income Tax (NIIT), which imposes a 3.8% surtax on investment income above $200,000 for single filers and $250,000 for married couples.

Considering Alternative Savings Vehicles

For SSDI recipients looking to invest while maintaining financial stability, certain savings vehicles offer tax advantages and flexibility.

ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts allow individuals with disabilities to save and invest without affecting means-tested benefits like Medicaid or SSI. While SSDI does not have asset limits, ABLE accounts provide tax-free growth and withdrawals for qualified disability expenses such as housing, education, and healthcare. Contributions are capped at $18,000 in 2024, with additional savings allowed for employed individuals.

Trusts and Other Investment Structures

Special needs trusts (SNTs) help individuals preserve access to government benefits while managing investments. While SSDI does not consider assets for eligibility, those receiving SSI or Medicaid may benefit from an SNT, as assets held in the trust do not count toward resource limits.

A third-party SNT, funded by family members, allows beneficiaries to receive financial support without affecting benefits. First-party SNTs, funded with the beneficiary’s own assets, require Medicaid payback provisions upon the individual’s passing.

Beyond trusts, Roth IRAs provide tax-free growth and withdrawals, making them a useful tool for long-term financial planning.