Tuesday, April 14, 2015

A special plan for those with special needs

As a grandparent of a special needs child I have firsthand knowledge of how much extra time, love and patience is required of the parents on a daily basis. I’m so very proud of my son and daughter-in-law at how well they manage their household day in and day out.

As a financial adviser, I am also keenly aware that having a child with special needs can be a significant strain on a household budget.

At the end of 2014, President Obama signed into law the Achieving a Better Life Experience Act (ABLE). One of the major goals of the ABLE Act was to provide people with special needs an incentive to save.

You would think that families would be thrilled when their special needs adult child got a job. Unfortunately, landing a job could create a drawback. If the special needs person earned too much money they could forfeit their eligibility for government programs.

In other words, to a certain degree it almost forced special needs people to keep their income so low that they were practically living in poverty. The ABLE Act is intended to alleviate this concern.

One of the provisions of the ABLE Act created 529A plans, modeled after 529 College Savings Plans, which I have written about before. A 529A plan is intended to help families with special needs children save for their future without giving up eligibility for public benefits.

As with traditional 529 plans, the 529A must be used for “qualified” expenses. Since special needs last a lifetime, the qualified expenses last over a person’s lifetime on purchases and expenses related to the special needs, including education, employment training, housing and health care.

A big difference between the traditional 529 and the 529A plan is that with the traditional program the account owner, typically a parent or grandparent, can withdraw the money at any time. Of course, they must pay taxes on any gains plus a ten percent penalty. With the 529A plan, the money is truly the special needs person’s money.

With most traditional 529 programs there’s a cumulative cap. It varies from state to state, but it’s generally around $200,000. The new 529A plans simply limit the annual contribution to $15,000 per year and only the first $100,000 is exempt from Supplemental Security Income. Once the account value exceeds $100,000, SSI benefits are no longer received.

With traditional 529 plans, families can purchase the program of virtually any state. For example, if you like the fund manager of say, Ohio, you can purchase it for your loved one. With the 529A plan, it must be your state.

I recently called the two 529 programs available to Michigan residents and I am sorry to say that neither offers a 529A program. Nor does one appear to be in the works. I find this extremely disappointing.

This is a program that Michigan should offer. I’m certain there are a number of grandparents who would like to financially contribute to the long-term care needs. It might be helpful to write your elected officials in Lansing and urge them to do something.

In the meantime, I tip my hat to all the moms, dads and grandparents who, on a daily basis, do the very best they can with a smile under difficult circumstances.

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