Retirement Income Toolbox

May 15, 2017

                                                                Retirement Income Toolbox


May 15, 2017


The following information caught my eye when reading the April 10, 2017 article in Investment News.  The article was written by Liz Skinner

Families who have special needs children require distinctive help planning to save enough resources for a lifetime of care in ways that don’t jeopardize collection of federal benefits.

Two developments during the last 16 months have given planners better tools to deploy for the care of disabled children.  One is the creation of tax-advantaged Achieving a Better Life Experience savings accounts, and the other is new rules around self-funded trusts that a special-needs child can create for themselves.

It is important to develop a plan for a child who has a disability because his or her mom and dad will not be around forever to support that child and their expenses.

Parents of the approximately 56.7 million individuals in the U.S who have special needs typically depend on a combination of government benefits and their own funds to cover their care and support.  The tricky part when saving for their care is that there is a $2000 total asset limit for the disabled individual in order to be eligible for means-tested government benefits.  Once someone is deemed in-eligible for this government support, he or she can be reinstated but it’s quite a daunting process.

The newly available ABLE accounts, set up under similar tax rules as a 529 college savings plan, are an important savings vehicle for parents to provide day-to-day and long-term care of a disabled child.  The accounts, which must be funded with cash and have annual limits of $14,000, create a pool of resources that can be used for qualified expenses of the disabled person, which includes everything from health care and housing, to large purchases like travel or costly medical equipment.

Money in these investment accounts, which can be opened for anyone who has been diagnosed as disabled by age 26, grows tax free.  There are two important details to these accounts long term however.

Usually there is a $100,000 threshold that needs to be watched because if the account tops that, the eligibility of the child to receive supplemental security income (“SSI”) can be suspended.  Some advisors recommend using an account that comes with an automatic alert if the account is nearing $100,000.

Also after the individual passes away, the state can take all or some of the remaining funds in the accounts to make up for what they have spent on the individual’s behalf.

For more information and to compare what each state’s plan allows you can go to for more information.

Special-needs trusts are another common planning tool that can be used by families with special needs children.

A Third-party, special-needs trust, also called a supplemental needs trust, can be stablished with funds that belong to someone other than the child, but the funds in the trust must be used to supplement government benefits that an individual with the disability receives.  The major advantages of these are that there is no limitation in how much can be accumulated in the trusts, and they can be funded with assets other than cash, such as real estate, investments and even life insurance proceeds.

For more information on these types of plans and trusts ask your advisor to recommend a professional that specializes in this field.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.