Is the ABLE Account the Right Savings Tool for My Special Needs Child?
Question: It is the beginning of a new year, I want to start saving for my child’s future, and I heard quite a bit about the ABLE Accounts. Is an ABLE a good account to begin saving in for my child’s future?
Saving for your child’s future is a great step in helping him/her live a full life. An ABLE account is certainly one option that is available for you to use; however, it does have some drawbacks that you should be aware of before jumping in.
The ABLE Act (Achieving a Better Life Experience) paved the way for the ABLE account, which allows an individual who was diagnosed with a disability before the age of 26 to have an account in his/her name that can have more than $2,000 and still qualify for needs-based government benefits such as SSI (Supplemental Security Income) and Medicaid. The passage of ABLE has allowed individuals with a diagnosis to have savings in his/her own name, and feel a financial sense of accomplishment that was not available before. With that said, there are some downsides to The ABLE account which may deter you [as a parent] from saving your money in an ABLE account. The disadvantages are:
- Annual Funding limitations based upon the annual gift tax exclusion amount ($14,000 in 2016)
- Only one account per qualifying individual
- Maximum account value of $100,000 before SSI is suspended (a monthly income that is used for many individuals to fund housing and other necessary life-long supports)
- Payback Provision to Medicaid at the passing of the individual with the disability (meaning any remaining money in the ABLE Account, at death, will be susceptible to government payback)
- Withdrawals can only be taken for Qualifying Disability Expenses and only for the benefit of your child.
Although, an ABLE account may be a tool that you use for your child, it most likely will not be your first choice due to the drawbacks listed above. It is important to ensure flexibility when saving for your child’s future, and to understand that as you save, your entire family will continue to have financial needs. Once you place savings in an ABLE Account, that money can only be used for the benefit of your child, which means if you lose your job, or your roof needs to be replaced, you must have savings built up in other accounts to satisfy those needs.
As you consider saving for your child’s future, I suggest you change the word “saving” to the word “planning.” Your child’s future will require more than one tool to ensure a lifetime of support, and for that reason having a plan (and not just savings) will serve your child, you, and your family in a more complete manner. As you begin planning for your child, it is critical to plan with the understanding that your child’s planning must be coordinated with your own future planning because the choices you make [especially on which accounts you use to save your money for your future] will have an impact on the amount that you are able to provide for your child. A comprehensive plan will include, coordinate and integrate areas such as:
- Legal (will, Special Needs Trust, powers of attorney, etc.)
- Financial (savings, insurance, investments)
- Taxes (certain accounts when left to a Special Needs Trust could be levied with a nearly 50% tax, while others will not be taxed)
- Government benefits – protecting these benefits for your child’s lifetime support needs
- Employee benefits for parents
- Business owned by parents
- Communication of your plan. This type of planning involves your entire family, and others due to your child’s continued support needs even when you are gone, which means you must have a communication strategy to ensure those people know the plan.
Special Needs Planning does include a number of areas to consider, which is why it will behoove you to seek out specialists before you begin saving in an ABLE account or any other account for that matter. Please feel free to find additional resources at http://aspecialneedsplan.com/resources/
For more information on how to prepare for the future, be sure to contact a financial advisor who specializes in serving families with special needs. A Special Needs Plan is driven by what they call Unleash L.I.F.E.™—L.I.F.E. meaning Lasting Independence For Everyone™. This is accomplished with education, action, and support in the creation, implementation, and continued monitoring of a specifically-designed lifelong and integrated plan for your family of parents, caregivers, your loved one with special needs, and their siblings.
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Ryan F. Platt is a registered representative of and offers securities, investment advisory, and financial planning through MML Investors Services, LLC. Member SIPC (www.sipc.org). A Special Needs Plan is not subsidiary or affiliate of MML Investors Services, LLC or it affiliated companies. This article is not a recommendation or endorsement of any products.
This article was featured in Issue 57 – Conquering A New Year