The Social Security Administration (SSA) pays monthly retirement benefits to individuals who qualify to receive them based on their work records. The Internal Revenue Service (IRS) allows a Social Security recipient to establish a Roth IRA if he records earned income on his federal tax return in the year he opens the account. Since an individual receives SSA retirement payments based on his former employment, the IRS does not view his monthly SSA benefits as earned income in any year he receives them.
Social Security Retirement Eligibility
The SSA requires a worker to accumulate a certain number of work credits to become eligible to receive SSA retirement benefits. The SSA determines the number of credits a person must accrue based on his age, but does not require a person to earn more than 40 at any age. The SSA rewards an individual with one credit for every calendar quarter he works and pays taxes into the Social Security Trust Fund.
Full Retirement Age
In general, the SSA allows a person to begin receiving SSA retirement benefits as early as age 62. If a person postpones initiating payments until he reaches or passes his full retirement age, however, the SSA will increase the amount he receives on a monthly basis. The SSA assigns a person a full retirement age based on his year of birth. As of publication, the maximum full retirement age assigned by the SSA is 67, the full retirement age assigned to all individuals born during or after 1960.
If a person begins receiving SSA retirement benefits before he reaches his full retirement age, the SSA reduces the amount of his monthly payments if his income surpasses certain thresholds. The SSA reduces a person’s benefit by $1 for every $2 he earns over $14,160 during each year preceding the one in which he reaches his full retirement age, for instance.
Social Security Disability
If a worker qualifies to receive SSA retirement benefits, he is also eligible to receive SSA disability payments if he suffers a disability at any age. In general, a person receiving disability benefits does not work, and so reports no earned income on his federal tax return. If an SSA disability recipient attempts to reenter the workforce and earns money while collecting SSA disability benefits during his trial work period or his extended period of eligibility, the IRS may allow him to establish a Roth IRA, however.
Roth IRA Eligibility
The IRS allows a person to establish and contribute to a Roth IRA at any age. The IRS does require a person to record earned income such as wages and tips on his federal tax return during the years in which he makes contributions to his account, however. If a person’s modified adjusted gross income exceeds limits identified by the IRS in a given tax year, the IRS will reduce or eliminate his ability to contribute to his Roth IRA during that same year.
In the current year, the IRS allows a person under 50 years old to contribute the lesser of $5,000 or 100 percent of his earned income to his Roth IRA account. If an SSA recipient is 50 or older, the IRS permits him to contribute up to $6,000.
- IRS.gov; Publication 590 Individual Retirement Arrangements (IRAs); February 2011
- IRS.gov; 2011 Contribution and Deduction Limits...; November 2010
- Social Security Online; Working While Disabled - How We Can Help; August 2011
- Social Security Online; Update 2011; January 2011
- Social Security Online; Full Retirement Age; July 2011
- Social Security Online; Your Unanswered Questions...Answered; April 2011
Deborah Barlowe began writing professionally in 2010. With experience in earning securities and insurance licenses and having owned a successful business, her articles have focused predominantly on finance and entrepreneurship. Barlowe holds a bachelor’s degree in hotel administration from Cornell University.