Yes, you can legally spend down assets to keep your Supplemental Security Income (SSI) benefits. You must do this by purchasing specific goods and services for yourself within a strict time limit. This process turns money that would disqualify you into property that the government does not count.
The primary problem comes from a federal rule, 20 C.F.R. § 416.1205, which sets the maximum assets an SSI recipient can own. This rule creates a direct conflict when you receive a lump sum of money, forcing you to choose between keeping the money and losing your essential monthly income and health care. Because this asset limit has not been updated for inflation since the 1980s, it traps people in poverty .
This outdated rule is not a small issue. Each year, the Social Security Administration (SSA) suspends benefits for about 70,000 people for having assets over the limit . A moment of good fortune, like an inheritance, can quickly turn into a financial crisis.
This guide will give you the knowledge to navigate this challenge successfully.
- ✅ Understand the Core Problem: Learn exactly why a lump sum of money puts your SSI benefits at risk and the specific SSA rules that cause this conflict.
- 💰 Master the Spend Down Rules: Discover the four pillars of a legal spend down, including the critical timing, what you can buy, and what you absolutely cannot do.
- 📝 Follow a Step-by-Step Plan: Get a clear, actionable checklist for spending the money correctly and reporting it to the SSA to avoid penalties.
- ❌ Avoid Catastrophic Mistakes: Identify the common errors that cause people to lose their benefits for up to three years and learn how to prevent them.
- ⚖️ Compare Your Options: See a clear breakdown of when a spend down is the best choice versus when a Special Needs Trust or ABLE account is better for your situation.
The Core Conflict: Why a Sudden Windfall Becomes a Ticking Clock
Supplemental Security Income, or SSI, is a federal program run by the Social Security Administration (SSA). Its purpose is to provide a basic monthly income to adults and children with disabilities or older adults who have very little money.1 Because it is a “needs-based” program, you must stay below strict financial limits to receive it.
The central conflict is a rule that has not changed in decades. Under federal regulation 20 C.F.R. § 416.1205, an individual cannot have more than $2,000 in countable assets, and a married couple cannot have more than $3,000.1 These limits have not been adjusted for inflation since 1989, making it nearly impossible for recipients to save for emergencies without risking their benefits .
This rule forces a difficult choice when you receive a lump sum of money from an inheritance, lawsuit, or even lottery winnings.3 The new money can instantly push you over the asset limit. The immediate negative consequence is the suspension or termination of your SSI payments and, in many states, your Medicaid health insurance.6
Income vs. Resource: The SSA’s Two-Step Rule That Creates the Deadline
To understand how to solve this problem, you must first understand how the SSA views a lump sum of money. The SSA uses a two-step process that creates a very tight and unforgiving deadline. This process is what makes a legal spend down both necessary and possible.
First, the SSA treats a lump sum as unearned income in the calendar month you receive it.3 Because your monthly SSI payment is based on your income, this new “income” will almost certainly make you ineligible for your SSI check for that one month. You will likely have to pay back the SSI money you received for that month.3
The critical change happens on the first day of the next month. Any money from the lump sum that you have not spent is no longer considered income. Instead, it becomes a countable resource.3 If that leftover money, plus any other savings you have, is over the $2,000 or $3,000 limit, you are ineligible for SSI from that day forward.
The Four Pillars of a Legal Spend Down
A successful spend down is not a random shopping spree. It is a legal strategy that requires you to follow four foundational rules precisely. Breaking any of these rules can lead to the loss of your benefits.
Pillar 1: The Calendar Month Deadline – Your Absolute Last Day
This is the most important rule. You must complete your spend down within the same calendar month that you receive the money.3 This deadline is absolute and has no exceptions.
It is critical to understand this does not mean you have 30 days. If you receive money on the 28th of August, you only have until midnight on August 31st to finish spending it.3 For large purchases made by check, the check must clear your bank account before the end of the month. To be safe, use a cashier’s check for any large, late-month purchases to ensure the money is gone from your account in time.3
Pillar 2: The Sole Beneficiary Rule – No Gifts Allowed
Every dollar you spend must be for your direct benefit and your benefit alone.3 You cannot use the money to buy things for your family, pay someone else’s bills, or give the money away as a gift.4 The SSA calls this a “transfer of resources for less than fair market value”.10
If you break this rule, the SSA will penalize you by making you ineligible for SSI benefits for a period of up to 36 months.15 The length of this penalty depends on how much money you gave away. This is one of the most common and damaging mistakes people make.
Pillar 3: Exempt vs. Countable Assets – Knowing What’s “Safe”
The goal of a spend down is to turn “countable” money into “exempt” property or services. Countable assets are things the SSA includes when checking if you are over the $2,000/$3,000 limit. Exempt assets are things the SSA ignores.
Knowing the difference is essential for a successful spend down. Buying another countable asset, like stocks or a second home, does not help you because you are just trading one countable asset for another. You must buy things from the exempt list.
| Asset Type | Does the SSA Count It? |
| Cash & Bank Accounts | Yes, Countable 16 |
| Stocks, Bonds, Mutual Funds | Yes, Countable 16 |
| Second Home or Vacation Property | Yes, Countable 16 |
| Second Vehicle | Yes, Countable 20 |
| The Home You Live In | No, Exempt 1 |
| One Vehicle | No, Exempt 16 |
| Household Goods & Furniture | No, Exempt 16 |
| Burial Plots & Some Burial Funds | No, Exempt 16 |
| ABLE Account (up to $100,000) | No, Exempt 1 |
Pillar 4: The Burden of Proof – Your Paper Trail Is Everything
After you finish your spend down, you must prove to the SSA that you followed all the rules. The SSA will not take your word for it. You have the “burden of proof,” which means you must provide a complete and undeniable paper trail for every dollar you spent.23
Think of it like a financial audit. You must keep original receipts for everything you buy.3 You will need bank statements from the last day of the month and the first day of the next month to prove your balance was below the limit at the exact right time.3 For a house or car, you need a copy of the title or deed in your name.3 Without this proof, the SSA may decide you did not complete the spend down correctly and stop your benefits.
Three Common Windfalls: A Playbook for Action
How you handle a spend down depends on where the money came from. The three most common situations are an inheritance, a legal settlement, and a retroactive payment from Social Security. Each requires a slightly different approach.
Scenario 1: The Unexpected Inheritance
Maria receives SSI and lives in an apartment. Her grandmother passes away, and on May 10th, she receives an inheritance check for $25,000. She currently has $300 in her savings account. Her total countable resources are now $25,300, which is far over the $2,000 limit. She must spend down at least $23,301 before June 1st.
Maria creates a plan to improve her life while following the rules. She knows she cannot give money to her son or pay his bills.
| Purchase | Result |
| Pay off $4,000 in credit card debt. | This is a valid expense. The debt is gone, and her countable cash is reduced. |
| Buy a reliable used car for $12,000. | This is an exempt asset. The title must be in Maria’s name only.10 |
| Pre-pay for her own funeral arrangements for $7,000. | This is an exempt expense, as long as it is in an irrevocable trust.3 |
| Buy new furniture and a television for $2,300. | These are exempt household goods. She keeps all receipts.3 |
After these purchases, Maria has spent $25,300. Her bank account is back to $300, which is safely below the $2,000 limit. She has preserved her SSI eligibility for June.
Scenario 2: The Personal Injury Settlement
David, who is on SSI, was injured in an accident. On October 20th, he receives a settlement of $50,000. He has $1,000 in his checking account, so his total resources are $51,000. He has until midnight on October 31st to spend down below the $2,000 limit.
David’s injury makes it hard for him to use stairs. He decides to use the money to secure stable, accessible housing.
| Expenditure | Outcome |
| Make a $45,000 down payment on a small, accessible condo. | This is an excellent use of funds. The money is converted from countable cash to exempt home equity. David’s name must be on the deed.4 |
| Pay $2,000 in legal fees to the attorney who helped with the home purchase. | This is a valid professional service expense. He gets a detailed invoice.3 |
| Pay off $3,500 in outstanding medical bills from his injury. | This is a bona fide debt and a permissible expense. He keeps the payoff confirmation letters.4 |
David has spent $50,500. His checking account now has $500. He is below the resource limit and has used the settlement to dramatically improve his living situation.
Scenario 3: The Retroactive Social Security Payment
Sarah was approved for SSI, and on March 5th, she receives a large lump sum of $15,000 for past-due benefits. This situation is different and much better for Sarah because of a special rule.
Retroactive payments from Social Security (both SSI and SSDI) are exempt from the resource limit for nine full months after the month you receive them.16 This gives Sarah until the beginning of January of the next year to spend the money. She does not have to rush.
| Action within 9 Months | Impact on Eligibility |
| Sarah uses $14,000 to buy a new, reliable car. | This is a valid purchase of an exempt asset. The 9-month window gives her time to shop for the right vehicle without pressure. |
| She places the remaining $1,000 into her checking account. | At the end of the 9-month exclusion period, this $1,000 will become a countable resource. As long as her total countable resources are under $2,000, she remains eligible. |
This 9-month rule is a powerful exception. It provides a critical window to make thoughtful decisions, but it only applies to back payments from the Social Security Administration. It does not apply to inheritances or legal settlements.
Your Step-by-Step Spend Down and Reporting Guide
Following a clear process is the best way to avoid mistakes. This checklist breaks down the entire process, from the moment you get the money to when you report it to the SSA.
- Calculate Your Target Immediately. The day you receive the money, add the full amount to your current countable resources (like your bank balance). Subtract the SSI limit ($2,000 for an individual, $3,000 for a couple). The result is the minimum amount you must spend.
- Make a Spending Plan. Before you buy anything, list your intended purchases. Prioritize needs like paying off debt or essential home repairs. Make sure every item on your list is a permissible, exempt asset or service. It is highly recommended to have a special needs or elder law attorney review your plan before you start spending.3
- Execute and Document Everything. Make your purchases and get a detailed receipt for every single one. If you buy a car or home, make sure the title is put in your name immediately.3 For any large purchases near the end of the month, use a cashier’s check to guarantee the money leaves your account on time.7
- Verify Your Bank Balance. On the last business day of the month, get a printed statement from your bank showing your balance is below the limit. Do it again on the first day of the next month. This creates the “before and after” proof the SSA needs to see.3
- Assemble Your Reporting Packet. Gather all your documents into one organized package. This should include a cover letter explaining you did a spend down, copies of all receipts, the bank statements, and copies of any titles or loan payoff letters. Make a full copy of the entire packet for your own records.7
- Report to the SSA. You must report the spend down to your local SSA office. The report must be received by the 10th day of the month after the month you received the money.3 Send your packet by Certified Mail with a return receipt so you have proof they received it.
- Report to Your State Medicaid Agency. In many states, SSI eligibility automatically gives you Medicaid. These are called “1634 states.” In other states, called “209(b) states,” you must report to your state Medicaid agency separately.7 Failing to do so could cause you to lose your health insurance even if you keep your SSI.
Catastrophic Mistakes That Will Cost You Your Benefits
The spend down process is filled with traps. A single mistake can lead to benefit suspension and a large debt to the SSA. Knowing these common errors is the first step to avoiding them.
- Gifting Money to Family. This is the most common and damaging mistake. Giving cash to a child or paying a relative’s bill is a prohibited transfer of assets.10 The SSA will penalize you with a period of ineligibility that can last up to 36 months.15
- Missing the Calendar Month Deadline. This rule is unforgiving. If you write a check on the 30th but it doesn’t clear your bank until the 2nd of the next month, the SSA considers that money to still be yours on the 1st. This timing failure will make you ineligible.3
- Buying the Wrong Things. A spend down only works if you buy exempt assets. If you use $15,000 in cash to buy $15,000 in stocks, you have not reduced your countable resources at all. You have only swapped one countable asset for another and will still be over the limit.
- Failing to Report to the SSA. You must report the lump sum and the spend down by the 10th of the following month.3 If you fail to report, the SSA will continue paying you benefits for which you are not eligible. When they discover the error, they will demand you repay all of it in what is known as a “clawback,” which can create a debt of thousands of dollars.23
- Paying Back an Informal Family “Loan.” You can only pay back a debt if it was a “bona fide” loan from the start, meaning there was a formal agreement to repay it.4 Simply giving money to a relative and calling it a loan repayment after you get a windfall will be seen by the SSA as a prohibited gift.
Beyond the Spend Down: When a Trust or ABLE Account Is a Better Choice
A spend down is a powerful tool, but it has one major drawback: the money is gone forever.3 For larger sums of money or for people with ongoing needs, other strategies like Special Needs Trusts (SNTs) and ABLE accounts can be better options.
A Special Needs Trust (SNT) is a legal tool where money is held and managed by a trustee for a person with a disability. The money in the trust does not count as a resource for SSI or Medicaid.32 The trustee can use the funds to pay for supplemental needs like therapy, education, or travel.33
An ABLE Account is a special savings account for people whose disability began before age 26.1 Money in an ABLE account can be used for qualified disability expenses. Up to $100,000 in an ABLE account is exempt from the SSI resource limit.1
Pros and Cons: Spend Down vs. SNT vs. ABLE Account
Choosing the right strategy is a critical decision. A spend down offers immediate solutions, while trusts and ABLE accounts provide long-term security. These tables compare the advantages and disadvantages of each approach.
| Pros of Each Strategy | Why It’s an Advantage |
| Spend Down | Simple, low-cost, and provides immediate benefit by allowing you to buy needed items like a car or home repairs. Perfect for smaller lump sums.3 |
| Special Needs Trust | Preserves large sums of money for your entire lifetime. A trustee manages the funds, providing long-term financial security for ongoing needs.3 |
| ABLE Account | Easy to set up and manage, like a bank account. It allows you, your family, and friends to save money for disability expenses without impacting benefits.1 |
| Cons of Each Strategy | Why It’s a Disadvantage |
| Spend Down | The money is permanently gone and cannot be used for future emergencies or needs. The tight deadline creates a high risk of making mistakes.3 |
| Special Needs Trust | Expensive to set up due to legal fees and may have ongoing administrative costs. You lose direct control over the money, as a trustee must approve all distributions . |
| ABLE Account | Only available if your disability began before age 26. There are limits on how much money can be contributed each year.22 |
The Ultimate Do’s and Don’ts Checklist for Your Spend Down
| Do’s | Why It’s Important |
| Do Act Immediately | The calendar month deadline is absolute. Waiting even a day to start planning can put you at risk of missing it. |
| Do Make a Plan First | Planning your purchases ensures you buy only exempt items and meet your spend down target without wasting money. |
| Do Keep Every Receipt | Your receipts are your primary evidence. Without them, you cannot prove to the SSA where the money went. |
| Do Use a Cashier’s Check | For large, end-of-month purchases, a cashier’s check guarantees the funds leave your account in time, avoiding a timing failure. |
| Do Consult an Attorney | An elder law or special needs attorney can review your plan and help you avoid costly mistakes that could jeopardize your benefits.17 |
| Don’ts | Why It’s a Mistake |
| Don’t Give Money Away | Gifting money to anyone is a prohibited transfer that will trigger a penalty period of up to 36 months without SSI benefits. |
| Don’t Pre-Pay Rent | You can only pay rent for the current calendar month. Pre-paying for future months is not allowed and is treated as a gift.26 |
| Don’t Buy Countable Assets | Buying stocks, bonds, or a second home does not reduce your countable resources and will not help you maintain eligibility. |
| Don’t Forget to Report It | Failing to report the lump sum and spend down to the SSA by the 10th of the next month can lead to large overpayment debts. |
| Don’t Miss the Deadline | If you are even one dollar over the resource limit on the first day of the next month, you will be ineligible for SSI for that entire month. |
Frequently Asked Questions (FAQs)
Q: Do I have to repay the SSI I received in the month I got the lump sum?
A: Yes, in most cases. The lump sum is considered income for that month, which creates an overpayment. You will be required to pay back that month’s SSI benefit.3
Q: Can I pay back a loan to a family member?
A: No, unless it was a formal, written loan from the beginning. The SSA is very skeptical of informal family loans and will likely treat the payment as a prohibited gift without strong proof.4
Q: What happens if a check I write doesn’t clear my bank account in time?
A: You will be over the resource limit. The money is legally yours until the check clears. This is a critical timing failure that will make you ineligible for benefits for that month.3
Q: Can I just refuse to accept an inheritance to avoid this problem?
A: No. Refusing an inheritance is considered a transfer of assets by the SSA. This action can trigger the same penalty of up to 36 months of ineligibility as if you had taken the money and given it away.13
Q: What is the 9-month rule for retroactive payments?
A: This special rule applies only to back payments from Social Security. It gives you nine months to spend the money instead of just one calendar month. This rule does not apply to inheritances or settlements.16