As the mother of an autistic child, I am aware of the challenges of raising a child with special needs. Preparation for her future goes beyond therapy appointments, Individualized Education Plans (IEPs) and medical assistance programs.
Once my daughter turns 18, she can qualify for Supplemental Social Security (SSI), though there are restrictions on the amount of money an SSI recipient can earn and have in savings that impact how her father and I prepare for her future. The monthly income limit for an adult receiving SSI in 2020 is $783, or $1,175 if married; and $2,000 in assets, $3,000 if married1. The limitations can severely restrict a disabled adult in terms of saving and living a prosperous life. We want the best for our daughter.
A couple of regulations have addressed those limitations:
- The Achieving a Better Life Experience (ABLE) Act of 2014 allows for up to $15,000 in annual contributions to an ABLE account, a tax-deferred savings vehicle that does not count toward the SSI income or asset limits. Funds from an ABLE account can be withdrawn to cover qualified disability expenses (QDE)2 without penalty. To qualify for ABLE savings, the designated beneficiary must be eligible for SSI from a disability or blindness that began before the age of 26, though contributions to the account can be made after the disabled person turns 26. Anyone can contribute to the ABLE balance, but the Act restricted the total of all contributions to the annual limit—and each disabled person is allowed only one ABLE account.
- A provision of the Tax Cuts and Jobs Act of 2017 (TCJA) allows for additional ABLE account contributions in the form of the plan beneficiary’s own earnings—up to the Federal poverty line threshold of $12,760 in 2020. A maximum contribution by the beneficiary, then, increases the allowed annual contribution to $27,760.
As well, some states allow for a deduction against taxable income for contributions to an ABLE account.
It is important that parents and family members contribute as much as they can as early as they can to take advantage of the tax-free earnings. The quicker the contributions are made, the faster the earnings can accumulate. The account should not exceed $100,000, however, as any amount over the $100,000 will count against any means-based government benefits3.
To avoid exceeding the account’s growth limit, funds can be taken from the account systematically to pay for qualified expenses. Assuming a 5% annual return and no further contributions to the maximum $100,000, about $400 per month could be withdrawn in perpetuity without negatively impacting the balance: $730 could be withdrawn per month for 10 consecutive years and $50,000 would remain in the account.
There may be a time that it will be beneficial to start depleting the account entirely. Upon the death of the ABLE account beneficiary, many states require that any funds remaining in the ABLE account must first be used to repay state-provided medical benefits. As such, if the beneficiary used Medicaid assistance during his or her lifetime, the state could recover the costs of those benefits from the plan. In some cases, recovery could require the remaining balance. ABLE accounts unaffected by state recovery rules can be left to other beneficiaries.
Parents of children with special needs should pay close attention to the financial strategies they can employ to provide for them in later years. Estate planning vehicles like Special Needs Trusts can be established to pass along inheritances and protect property for the child with disabilities. Parents might also want to select a trustee for a trust or ABLE account to ensure funds are allocated properly.
It is important to work with a financial advisor who understands the nuances of providing for a child with special needs in order to ensure the appropriate strategies are incorporated into your special-needs child’s financial plan. For more information, or to schedule a consultation, contact me at dkline@hbkswealth.com or 724-934-8200.
1- There are “earned income exclusions” that apply to minimize what monies count toward the SSI limit, thus the gross income of an individual receiving SSI could potentially be as high as $1,600 per month without impacting benefits.
2 – QDEs include education, housing, transportation, employment training and support, assistive technology, personal support services, health prevention and wellness, financial management, administrative services, legal fees, monitoring expenses and the cost of a funeral and burial.
3 – Assuming a 5% annual return, the maximum could be reached within five to six years of annual donations.
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