Setting Your Child Up for Success with an ABLE Account - Ruben Digital

Setting Your Child Up for Success with an ABLE Account

Disclaimer: The following article is part of a series about important financial planning concepts for families of loved ones with special needs. It was written after an interview with members of the Canale Financial Group. Tom Canale and his team serve hundreds of families throughout the United States, and he is considered an expert in the special needs family planning space. The Ruben Digital team has a unique connection with this subject matter and it’s our passion to provide helpful resources to our community. Content in this article is for general information only and not intended to provide specific advice or recommendations for any individual. We hope you or someone you know finds this article useful!

If you have a child or loved one with special needs, you probably spend a lot of time thinking about their future. What kind of support or services will they need to thrive? How can I help set them up for a successful future? Special needs financial planning is an important part of the equation…and it’s ever too early to start! Disabilities usually come with many expenses that can conflict with your family’s long-term financial goals, but fortunately this is where investing with an ABLE account is very useful.

Are you wondering how you can make sure your child has access to income, health care, food, and housing assistance for the rest of their life? Or how family members can support their loved one without compromising access to public benefits? Many parents don’t know what an ABLE account is or how to get started, but we’re here to help! Read on to learn how ABLE accounts can help individuals with special needs thrive.

What is an ABLE account?

ABLE stands for “Achieving a Better Life Experience”, and that’s the purpose of this account. As you may be well aware by now, living with a disability often comes with significant amounts of extra costs. ABLE accounts were created to help lessen the financial strain, giving people with disabilities and their families greater financial independence while preserving benefits. Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed.

Grandparents, aunts, uncles, and siblings often want to just give money to their loved one, but that can actually be harmful. Without going through the proper channels, well-intentioned family members can end up disinheriting their loved one and costing them necessary government benefits. Unfortunately, individuals with disabilities must remain “poor” to receive public benefits from the government. Many of these benefits require meeting a means or resource test that limits the eligibility of individuals with more than $2,000 in liquid resources such as cash savings, non-ABLE checking and savings accounts, and some retirement funds.

That’s why we recommend individuals and families contribute to ABLE accounts, it’s a tax-advantaged savings account that can fund disability expenses without costing the individual. Right now, the total annual contribution by all participating “contributors” for any given tax year is currently $16,000!

“ABLE is a great alternative to disinheriting a child, parents often discourage families from giving their special needs child money because it could prevent them from receiving government benefits or help in the future; this is a way around that. ABLE is very flexible and broadly defined as far as how money can be distributed, a common  misconception is it has to be for specific expenses, but not the case.” – Tom Canale

Why are ABLE accounts necessary for individuals with disabilities?

The ABLE National Resource Center thoroughly shares the need for ABLE accounts: “For the first time in public policy, the ABLE Act recognizes the extra and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working-age adult with disabilities, accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare. For the first time, eligible individuals and their families will be allowed to establish ABLE savings accounts that will largely not affect their eligibility for SSI, Medicaid and means-tested programs such as FAFSA, HUD and SNAP/food stamp benefits. The legislation explains further that an ABLE account will, with private savings, “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”

Is my loved one eligible for an ABLE account?

Eligibility for ABLE accounts is limited to individuals who have had their onset of the disability before turning 26 years old. If your loved one didn’t develop the disability until after age 26, unfortunately they do not qualify for this type of savings account. If your special needs child meets this age requirement and is also receiving benefits under SSI and/or SSDI, you are automatically eligible to establish an ABLE account.

Even if the individual doesn’t receive SSI and/or SSDI but still meets the age of onset disability requirement, they can still be eligible to open an ABLE account as long as they meet Social Security’s definition and criteria regarding functional limitations. This may include submitting a letter of disability certification from a licensed physician or other doctor on the individual’s care team.

Interesting fact: Proof of eligibility is actually not required to open an account. The individual who owns the account (the beneficiary) will self-certify during the enrollment process and recertify annually. We recommend your loved one maintains a record of their diagnosis, benefits verification letter, or any other relevant documents in case they’re required to prove eligibility later on.

How do we set up an ABLE account?

High-quality, low-cost IL ABLE savings and investment accounts can be opened by an eligible individual, or Authorized Individual, at any time, no matter what state you live in. This means if your child is a minor, then parents or the legal guardians set up the account. If the individual is 18 years old, then they have the legal authority to open an account on their own. An “Authorized Individual” may open and manage the account on behalf of the account owner if they don’t have the authority to act on behalf of financial matters.

According to Illinois ABLE, the following people can serve as Authorized Individuals:

  • Parent(s) or Guardian(s) of an eligible minor
  • Parent of an eligible adult (must submit copy of birth certificate)
  • Guardian(s) of an eligible adult (must submit copies of Guardianship documents)
  • Person granted Power of Attorney by the eligible adult (must submit POA documents)

ABLE accounts may be set up online or through mail. If you need guidance, a financial advisor can assist you every step of the way.

Setting Your Child Up for Success with an ABLE Account - Ruben Digital
What are the benefits of an ABLE account?

For starters, an ABLE account gives individuals with disabilities and their families more choices and control compared to other investment avenues. For example,  establishing an account will cost considerably less than a Special Needs Trust (SNT) or Pooled Income Trust. With an ABLE account, the account owner can control their funds and, if circumstances change, still have other options available. Of course, determining which savings option is the most appropriate will depend upon individual circumstances and your family’s long-term goals.

Another benefit is that virtually any person (such as a family member, friend or even an employer) may contribute to an ABLE account on behalf of the beneficiary. The term “person” as defined by the IRS also includes a trust (i.e., Special Needs Trust or Pooled Income Trust), estate, partnership, association, company or corporation. Funds can even be rolled over from a 529 college savings account into an ABLE account!

Did you know that ABLE accounts also offer checking account and debit card options? Just another example of the flexibility and accessibility ABLE provides that other trusts and savings accounts may not.

The ABLE Act defines which Qualified Disability Expenses (QDEs) can be paid from ABLE account funds. Typically all expenses related to living with a disability or special needs are included including costs that improve the quality of life, independence, and overall health of the individual account holder. The list of ways ABLE accounts may be used includes:

  • Basic living expenses
  • Housing
  • Education and training
  • Transportation
  • Assistive technology
  • Financial management and legal fees

“ABLE accounts add an additional layer of financial security, especially while navigating an uncertain future. Over 63,000 individuals—out of an estimated eight million who are eligible—have opened ABLE accounts to date, making ABLE accounts one of the most under-used ways to save money and retain much needed benefits.”

Using ABLE as an investment tool

How can ABLE be used as an investment tool? Let’s say you’ve already opened a 529 College Savings Plan when your child was born to save for their educational expenses. At the time you weren’t aware of their future needs. And now with your child’s disability, you’re thinking they may not attend college. What can be done with the savings this account has already accrued? Fortunately, the investment you’ve started growing in the 529 can be transitioned into an ABLE account!

With an ABLE account, you may choose among any combination of six risk-based investment options and an FDIC-insured interest-bearing checking account option with a debit card. You’ll choose a program based on your loved one’s needs and your family’s financial goals For example, an Aggressive investment option would seek higher potential returns, while a Conservative investment option places asset preservation over growth. Did you know the total balance of your IL ABLE account can grow to $500,000? At that point, contributions may no longer be made; however, the account may still continue to grow based on earnings.

Setting Your Child Up for Success with Special Needs Financial Planning

We know this is quite a bit of new information to process and many details to keep in mind, you don’t have to navigate this journey on your own! Your family isn’t the first and won’t be the last; countless other parents and guardians have had the same questions and concerns that you have right now. It can be an overwhelming process making these choices yourself, that’s why we highly recommend partnering with a trusted financial planner that specializes in special needs planning. Special needs financial planners are very well-versed with the ins and outs of supporting individuals with special needs.

Tom Canale suggests first focusing on qualifying for and protecting the child’s access to essential government programs such as Social Security and Medicaid: “These vital programs help cover basic living costs, like food, housing and clothing. However, what many parents don’t realize is that these programs limit the amount of assets a child can have in his or her own name to $2,000. It’s critical to understand that if you or a loved one writes a check directly to a child with special needs or leaves him or her an inheritance directly, the government could freeze that child’s benefits.”

Certainty of your child’s future needs is not required to begin financial planning. There is baseline planning that will be useful regardless of your family’s specific situation. It’s never too early for families to start investing for their child with special needs. There are many unknowns about what the future looks or what level of care they will need in the future, but you can do everything in your power to prepare for it! We highly recommend getting started saving for the future as soon as possible.

Partnering with a Trusted Financial Planner

Professional financial planners like the Canale Financial Group specialize in this area of family planning and can guide you through this process. Financial planners help families manage and integrate government benefits and family financial resources. Start thinking of what kind of qualified disability expenses you want to save for and how you’d like the funds to be used over time. Events to save for may include the purchase of a wheelchair, therapies not covered by insurance, paying for college, vocational training, transportation, health care, or long-term housing in adulthood.

As a parent of a child with special needs, the best thing you can do to secure their future and yours is to partner with a financial planner. Canale Financial Group has over 25 years of experience guiding families that are in the same situation as you. For a family with an individual with special needs, they will help you maximize your financial resources to provide a lifetime of financial security for yourself, your loved one with special needs, and any other beneficiaries you have.

Tom was featured in a Forbes article Financial Planning For A Child With Special Needs highlighting a case study with one of his clients. After finding out their son Scott was diagnosed with autism, Brian and Diane sprang into action! Are you interested in a preview of what it’s like working with Tom? Read the article to find out how he helped set the Vollmert family up for financial success.

You probably have questions regarding IL ABLE accounts, SNT (Special Needs Trusts), 529 College Savings, levels of risk, and so much more. Tom’s team is happy to answer any questions you have and clearly explain all of your options, including short-term, medium-term and long-term. They will also discuss your goals in terms of growth and how aggressively you’d like to invest in each account. Different investments will serve different purposes based on matching your child’s potential needs with timing and risk.

Canale Financial Group has worked with hundreds of families that have been in situations just like yours. When you partner with them, enjoy the benefits of planning for the entire family to enjoy an excellent quality of life for many years to come! We’ll work with you to develop a strategic investment plan unique to your loved ones needs.

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