Saving for Children with Special Needs

March 06, 2020

When it comes to saving, every family has a unique financial situation. But the process is more complex if you have a child with special needs.

When you have a special needs child, your financial situation is different from that of other families. Common concerns are:

Does my health insurance provide adequate coverage?
Is there any assisted technology that I need to buy?
How can I save for both my future and theirs?

Thankfully, with the ABLE Account, disabled Americans (and their loved ones), have a great mechanism for saving.

Before the ABLE Account

In the past, common financial planning strategies, such as saving money in the child’s name, had the potential to wipe out their Social Security Disability (SSDI) benefit. Chip Gerhardt, the President and Founder of Government Strategies Group, LLC, recently said on our Simply Money radio show, “It was contrary to everything that we’ve been taught that you should save, save, save. This was not only detrimental to that concept it was discriminatory to people who already had enough difficulties in their lives.”

Note: Having $2,000 in savings used to be enough to reduce government assistance for those with fundamental disabilities.

Gerhardt helped introduce a bill called the ABLE Act, which would go on to create the ABLE Account, a tax-advantaged savings plan for Americans with special needs. Modeled on the 529 college savings plan, the ABLE Account works like this:

Contributions can be made to the account by the beneficiary, family, friends, or an employer. (The account owner can only be the individual with a disability.)
The 2020 contribution limit is $15,000.
The account is available to any individual diagnosed with a significant disability before age 26. (You can still open an account at a later age.)
Contributions are not tax-deductible, but the money emerges tax-free if used for a qualified disability expense.

“The funds can also be used for transportation, assisted technology, housing, healthcare, and medical expenses,” Gerhardt said.

Using money from an ABLE Account

Many states offer loadable, prepaid debit cards with ABLE Account money. These cards are a great way to budget and plan for qualified disability expenses. Instead of pulling money directly from the account, you load the card with exactly how much you or your loved one needs.

Enrollment

Based on the state where you or your child lives, the enrollment process varies. For example, Ohio has the STABLE Account, California the CalABLE, and Colorado has the coloradoABLE. Each state also has a level at which they stop allowing deposits, which ranges from $200,000 – $500,000, or more. If you aren’t satisfied with your local plan, consider enrolling in another state’s ABLE program. Some are open to out-of-state residents, such as Ohio, North Carolina, and Pennsylvania.

Importantly, when you enroll in a state plan, you won’t be able to dictate exactly how the money will be invested. You can only scale your allocation between conservative and aggressive.

Also, keep in mind that a large ABLE savings account may impact your loved one’s Social Security Disability Insurance. If you save $100,000 in an ABLE Account, it can suspend, but not eliminate benefits.

Medicaid eligibility continues, regardless of your balance.

We recommend that you visit the National Resource Center for the ABLE Account to compare plans and learn more.

Other considerations

At Allworth Financial, we rarely recommend whole-life insurance policies. However, these plans can make sense for parents of children with special needs. That’s because your child is reliant on your income for care. Work with a qualified fiduciary (one who is not receiving a commission based on the plan you choose) to decide what policy makes sense for your needs and goals.

If you have a special needs child, you also may need more detailed estate planning, a special needs trust, and a more detailed long-term care strategy. Consider writing a “Letter of Intent,” which specifies your child’s individual medical, behavioral, and educational requirements.

The bottom line: The right financial planning for a child with special needs can help secure their financial future. Consider using an ABLE Account as a tool to help protect your loved ones.

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