How can I contribute to retirment on 3rd party disability

Forum|Forum|1 year ago
January 8, 2025
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I am on third party disability through my previous employer and I left my 401K and Roth with them. I was told by multiple sources that I could no longer contribute to any retirement funds. However, after research, it looks like I should be able to contribute, since the third party disability is taxable and I receive a W-2. Is it true that I can still contribute? If so, do I need to open a Roth IRA, can I use the Roth from my last job, should I be doing something else? Will my contributions be deducted from my taxable income? I am so confused....

Not A Product Question

Opus 17

Employee

You can't contribute to a qualified workplace plan except via payroll deduction.

You can open a private plan (traditional or Roth IRA) at any bank or broker of your choosing, but only if you have compensation. Compensation is generally what you earn from working, and is your box 1 w-2 wages minus any amount in box 11. See publication 590-A.

https://www.irs.gov/pub/irs-pdf/p590a.pdf

The question is not who pays the benefit, but who paid the premiums. If the premiums were paid by your employer, the disability payment is considered "wage replacement" and is considered compensation until you reach your retirement age. If you paid the premiums, the benefit is not considered compensation.