For Grandparents: Save for Retirement and Grandchildren’s Education

Posted by Haddad Nadworny on Sat, Jan 13, 2018 @ 07:36 AM

The Special Needs Financial Planning Team  Cynthia Haddad, CFP | John  Nadworny, CFP | Alexandria Nadworny, CFP  We are committed to offering educational workshops to organizations and parent  groups.  Please call Alex or click here to attend a workshop or discuss a presentation  to your group.


pexels-photo-355948.jpegA Roth IRA may be an option for grandparents to consider when saving for retirement and while also saving for their grandchildren’s education. The Roth IRA allows account owners to save with tax-free growth* and with the added flexibility to allocate and use the funds when they choose and for any purpose.

What is a Roth IRA:

 A Roth IRA is a retirement account funded with after-tax dollars. The contributions generally are not tax deductible but when you start withdrawing funds, qualified distributions are tax-free.

 Defining characteristics of a Roth IRA:

  • The money invested in a Roth grows tax-free*.
  • Contributions can continue to be made once the taxpayer is past the age of 70½, as long as he or she has earned income, which may be basically defined as W2 income.
  • Eligibility for a Roth account depends on taxable income.       Generally, in 2018 you are eligible if :
  • you are a couple filing jointly and your MAGI (modified adjusted gross income) is less than $189,000.
  • you file as an individual and your MAGI is $133,000.
  • Contribution amounts: In 2018 an individual may make an annual contribution of up to $5,500 to a Roth IRA. Individuals who are age 50 and older by the end of the year for which the contribution applies can make additional catch-up contributions (up to $1,000 in 2018). An individual may also establish a Roth IRA for their spouse with little or no income.
  • The taxpayer can maintain the Roth IRA indefinitely; there is no required minimum distribution (RMD) during the account holder's lifetime.

* Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

Case Study

John and Alice (fictional names) are grandparents of 2 grandchildren, one of whom has special needs.  John and Alice have $10, 000/year to contribute toward their retirement savings should an emergency or unforeseen need arise. They also want the opportunity to put these funds toward the goal of funding their grandchildren’s educational expenses and don’t want to miss this opportunity to save for them should the unforeseen or emergency never happen.

 Their first thought was to establish a 529 plan & ABLE account for each of their grandchildren. However, while John and Alice feel saving for college is an important goal toward which they want to contribute, they need and want flexibility and control over these funds. Their grandchildren may opt not go to college or John and Alice may have an unforeseen need come along for which they would use this savings. 

In meeting with John and Alice and discussing this goal, we suggested another alternative: establishing and funding a Roth IRA. This alternative is open to John and Alice as they both have earned income, file taxes jointly and do not exceed the $189,000 combined household maximum income threshold for Roth IRA contributions. There is no age limitation on opening or contributing to a Roth IRA.

The benefits of saving the $10,000/year in a Roth IRA are tax-free growth, with no limitations on use of funds or withdrawal rules( with exceptions noted above- see *).  John and Alice may each contribute up to $5500/ year to a Roth IRA. Today they feel as though they can afford to give their grandchildren money for their futures, but ideally John and Alice would like the option to have the money available to them if there was an unforeseen need. Should they have additional grandchildren, having the money in the Roth IRA can make it easier to distribute the money amongst all grandchildren.

 Potential drawbacks to using this approach might occur if the funds were left in the account and John and Alice required nursing care. This savings would be considered in their assets and also, should they pass away, this account would be included as a part of their estate assets. To control disposition of the assets upon their death, they may designate their children or grandchildren as beneficiaries of the account.

When making the decision of how best to save for your grandchild’s future, recognize that every family’s situation is different and that will have an impact on the final decision regarding the best savings option to consider.    

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for individualized tax advice. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. Please consult tax advisor regarding your specific situation.The Roth IRA offers tax deferral on any earnings in the account. Future tax law can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. The experiences described here may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary.

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Tags: planning for college, financial planning, Retirement Planning, Special Needs Financial Planning

January To- Do: Check Your Retirement Account Beneficiaries

Posted by Patty Manko on Sat, Jan 28, 2017 @ 08:00 AM

The Special Needs Financial Planning Team  Cynthia Haddad, CFP | John  Nadworny, CFP | Alexandria Nadworny, CFP  We are committed to offering educational workshops to organizations and parent  groups.  Please call Alex or click here to attend a workshop or discuss a presentation  to your group.Workshops Calendar

box_with_check.pngRetirement accounts like 401(k)s and IRAs represent a large portion of most people's savings. While these plans encourage saving by offering significant tax rewards, it is important to know and understand the possible consequences when a beneficiary or contingent beneficiary is a person with special needs and plan accordingly.

Most retirement plans require some form of distribution from the account once an account owner dies. Upon the account owner's death, the proceeds are distributed according to the beneficiaries listed on each retirement account and not your estate plan. Generally speaking, if you are married, your spouse is usually listed as the primary beneficiary. At the owner's death, the spouse will be able to transfer the assets into a spousal IRA rollover. This will enable the spouse to defer the taxes until the funds are withdrawn from the account.

If you are not married and your intent is for an individual with a disability to receive any portion of the IRA, you should consider having those proceeds paid to a trust that has special needs provisions. Please note that the language in the special needs trust must accommodate retirement plan distributions properly.  It is critical to work with a disability law attorney who can make sure your documents are up to date and protect your child’s eligibility for government benefits.

Planning tip: 

If a special needs trust is used as the beneficiary of a retirement plan account, the income earned in the trust will be taxed to the trust, usually at a higher tax bracket than an individual tax bracket. The proceeds from a Roth IRA are distributed tax free upon death of the owner. If an owner has a Roth IRA in addition to other retirement accounts, it may be advantageous to have the special needs trust named as beneficiary of the Roth IRA and the other children named as beneficiaries of the other IRA and retirement plan assets.

It is not recommended to have an individual with disabilities named individually as the beneficiary of the traditional IRA or Roth IRA*, because an account balance greater than or equal to $2,000 will disqualify him or her for government benefits. Instead, if the owner wants the value of all or a portion of the IRA to be received by a person with disabilities, that person's special needs trust should be named as one of the beneficiaries.

 
Here's an Example:

If you have more than one child and you intend to split your retirement account between all the children, including your child with special needs, you should direct his or her share in the beneficiary designation to the special needs trust. An example would be to have Adam Miller name his wife, Justine, as his primary beneficiary. He would then name two of his children, Kyle and Alyssa, as contingent beneficiaries, each to receive 33% of the retirement account; and he would name the special needs trust created for his third child, Alexia, as a third contingent beneficiary to receive the remaining 34% of the retirement account. Adam would list the special needs trust for Alexia on his beneficiary designation form by including the proper registration, "The Alexia Miller Special Needs Trust Dated January 1, 2007."

Questions? Talk with us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Tax laws and provisions are subject to change

* Roth RIA are distributed upon death of the owner tax free provided the account has been open for 5 years as of the date of death. Otherwise, taxes may apply to earnings distributed.

 

Tags: financial planning

Estate Planning for Digital Assets

Posted by Patty Manko on Wed, Jul 15, 2015 @ 03:34 PM

 By Sam Coveney, Intern, Shepherd Financial Partners

safeguarding_your_digital_assets

Traditionally, estate planning has focused on preparing an individual’s physical assets in the event of incapacitation or death.  In this new world filled with computers, smartphones, tablets, social media sites and online shopping marketplaces (just to name a few), it is remarkable that many people forget about all of the sensitive information they keep online when estate planning.  What would happen to that Paypal account or the credit cards entered online that could be lost in the event of incapacitation or death?  That Amazon account that you use?  The thousands of songs you bought and downloaded on iTunes? 

Amidst the positives of this digital revolution that we are experiencing, hackers are now more prominent than ever and can take advantage of online assets after a person’s death.  In addition, online companies usually do not provide access to the deceased’s accounts, unless explicitly requested by a fiduciary prior to incapacitation or death.  Password-protected accounts that contain information such as pictures, posts, documents and money, for example, can be lost upon death unless a solid plan is made.  Listed below are some of the best tips for protecting and preserving digital assets and ensuring that your online presence outlives you only in the presence of your family members and trusted individuals.

Keep a List of Passwords, Online Accounts and Digital Property.

Preparing a current, complete list of digital property, filled with passwords and usernames is essential in estate and succession planning.  Upon death or incapacitation, this list will provide family members and fiduciaries with an easy transition into taking the appropriate steps to manage and shut down existing accounts.  But what should this list include?  Start by downloading a “Digital Audit” which can be found by clicking here.  The general rule of thumb when estate planning for digital assets is to document anything that requires a username and password.  This includes usernames and passwords for personal computers, tablets, phones, email addresses, social media accounts and cloud storage devices, just to name a few.  A good place to start is by separating your hardware devices from your software programs, and recording the relevant information.  It is important to be meticulous and to record every account at your disposal.  Also, make sure that your most important files are easily accessible, yet safe, so that family members can easily access these documents.

Make sure that the list is protected.

Since this comprehensive list will have a great amount of sensitive information, it is best to keep the list in a secure location, such as a safe deposit box or a personal safe.  Never keep this list on your person, or in a non-protected spreadsheet on the hard drive of your personal computer.  The chances of misplacing or theft increase if you take this list with you.  If you prefer to keep an electronic copy instead of a hardcopy, consider using a password encrypted master list on your computer, and leaving clear instructions on how to access this master list.  There are many great web services available for this application, such as DeathSwitch, AfterSteps and BestBequest. 

Put Thought Into Who You Want Handling Your Digital Accounts

It sounds trivial, but naming a successor, family member, or fiduciary that is computer and tech-savvy is an important step in estate planning for financial assets.  You may leave an extensive list, with clear instructions on what accounts to shut down, which ones are assets and which ones are liabilities.  But if the successor can’t navigate this space easily, you may want to consider appointing someone who is more able.

Provide Instructions

In addition to preserving usernames and passwords, a comprehensive estate plan includes instructions for what is to be done with sites that don’t necessarily need to be “shut down” like an EBay account.  For example, a person may choose to preserve a website that they hold or keep old eBooks for their successors because it may provide some financial value down the road.  An estate plan for financial assets doesn’t always mean completely shutting down your online presence.  Keep detailed instructions on what things should be deleted, and what things should be preserved.

Give Legal, Appropriate Authority

This step usually involves an attorney, but assigning appropriate legal counsel or trusted advisors to look after your “financial estate” and ensuring a smooth transition to the next generation may be beneficial.  

For questions about safeguarding your digital and physical assets, contact us.

 

 

Kennedy, Dennis. "Estate Planning for Your Digital Assets." Law Practice Today RSS. American Bar Association, n.d. Web. 23 June 2015. <http://apps.americanbar.org/lpm/lpt/articles/ftr03103.shtml>.

Lamm, Jim. "My Digital Audit." Digital Passing. N.p., n.d. Web. 23 June 2015. <http://www.digitalpassing.com/digital-audit/>.

Kilham, Austin. "Estate Planning for Digital Assets." The Wall Street Journal. WSJ, n.d. Web. <http%3A%2F%2Fwww.wsj.com%2Farticles%2Festate-planning-for-digital-assets-1431357357>.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.  We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Tags: financial planning

How to Talk about the Money When Planning for the Future

Posted by Patty Manko on Thu, Sep 04, 2014 @ 09:24 AM

dad talk resized 600There are many ways to discuss your vision and your finances. It is often easiest to begin this process in a gradual manner and in an informal environment. Although it is important to have all family members in agreement, scheduling initial discussions in a formal meeting or large family setting is not always the best.

We recommend speaking to one child at a time, to get their feelings about their willingness to help. This will give them the opportunity to share ideas with you rather than you telling them what you hope will happen. Remember, caring for a family member with disabilities is a lifetime commitment that you do not want to force on anyone, yet it is important for them to know your intentions.

After everyone has had an opportunity to discuss their feelings and ideas in an informal way, you may wish to plan a discussion with everyone at once.  Since every family’s dynamics are unique, you will find the best way to communicate with your family.

The following steps should help to move the communication process along smoothly:

  • Share your vision
  • Talk about the amount of money you plan to have available to support your vision. You do not have to reveal all of your financial matters. You can choose to only mention the financial aspects that pertain to the needs of the family member with a disability.
  • Determine the best person to take on each role. For example, who is the best with finances? That person may be a good trustee or trust advisor of a Special Needs Trust. Who is most involved in the day to day life of the child? That person may be a good guardian.
  • Ask family members if they feel able to perform their roles independently. If not,design your plan to give them resources to work with. For example, let them know that they could hire an investment advisor to help with the trust management or a social worker to help oversee supports.

In our combined 30-plus years of planning, one of the biggest obstacles that we have encountered is that people do not feel comfortable talking about how much money they have. Even professionals in the field of providing services to families, including government agency employees that serve families, do not feel comfortable talking about money or the specific costs of providing services to individuals with disabilities. 

SNP STORY:

Although Charles is receiving all the benefits that he is eligible for and living independently, we feel that it is not enough for him to simply have what the government provides. We supplement his expenses by about $1,000 a month. This gives him the sense of self-worth and control to be able to do what he likes rather than do what someone else wants him to do. He has schizophrenia and his sense of self-worth is most important to his ability to function in life. In working with our financial planner and our attorney, we made arrangements for our other son to provide this supplement to support Charles’ needs without jeopardizing his government benefits when we are no longer able to. 

-- Charles’ father

Sometimes parents feel that they must treat all of their children equally. They feel that their children expect it. However, in many cases children without disabilities are more than willing to forego any type of inheritance to guarantee security for their brother or sister with  a disability. They understand the financial realities and would rather make sure their brother or sister is taken care of and would not expect that everything is shared equally.

One of the first steps that is required for you to be able to achieve financial security for your child is to overcome the reluctance to discuss the issues of money. We all know it takes money to provide services, staff, housing expenses, employment supports, transportation, education, health care services and the like. We also know that the government does not have an endless supply of money to fund these services.

So how do we determine how much money is needed? And how much is too much? Just as the educational needs of every child are unique, so are the long-term planning needs of every individual with special needs. Even two individuals with a similar medical and/or cognitive diagnosis, can have significantly different support requirements. With these varying requirements, costs will also vary. There is no clear answer; the best we can do is to maximize all resources and coordinate all of the Five Factors.That is why it is so important to have a comprehensive plan and to reevaluate it periodically.

Download our Special Needs Planning Checklist

Tags: financial planning, Special Needs Financial Planning, five factors of financial planning

Saving for College for Students with Special Needs

Posted by Patty Manko on Thu, May 15, 2014 @ 03:38 PM

clemson resized 600Faced with the increasing cost of higher education, students and their families must begin saving for college from an early age -- often from birth. 529 College Savings Plans offer families a great opportunity to set aside money for a child's college education, especially since funds held in 529 Plans grow tax-free. However, when a child with special needs is setting aside money for college, a 529 Plan may not be the best option. Given  the increase in population diagnosed with special needs and the leveling of government funding, the important thing is to plan or save for an individual with special needs; regardless of the funding vehicle!

 Here are some things to think about when family members ask about the best way to provide funds for a child with special needs' college education.

How Does a 529 Plan Work?

529 College Savings Plans are named after a provision of the tax code, and for good reason -- these savings accounts provide a substantial income tax benefit to the account beneficiary. Basically, a 529 Plan is a specialized account established for the benefit of someone who is planning to attend college. Anyone can create the 529 account for a relative, and once the account is created, anyone can contribute to it, with gifts into a 529 account qualifying for the $14,000 annual gift tax exclusion. But the best feature of a 529 Plan involves income tax savings, since all of the funds placed into a 529 account grow free from income taxes so long as they are spent on qualified educational expenses. For example, if parents fund a child's 529 Plan with $30,000 at birth and those funds grow to $60,000 by the time the child has reached college, there will be no income tax on the $30,000 gain in value. Because of this significant tax advantage, many families set up and fund 529 accounts when their children are young in order to obtain the best value over time.

 As mentioned above, the main advantage of a 529 Plan is that it provides the opportunity for tax free savings if the distributions meet the definition of the plan’s qualified college expenses.  Generally speaking, the sooner the funds are in the account, the longer the funds will be set aside for growth potential.  Unfortunately, the timing for college planning for individuals with disabilities is challenging because the younger a child is, the greater the uncertainty regarding college as an appropriate opportunity.

Another consideration in choosing a 529 Account is whether the child with special needs has siblings.  If they will not need the funds for college, the funds may be transferred with no penalty to a sibling.

How Do 529 Plans Affect Someone's Government Benefits?

Some government benefits, like Supplemental Security Income, have very strict income and asset limits. Because of these restrictions, it is vitally important that the 529 account is not owned by the person with special needs. Furthermore, if the 529 account was set up when a child was younger and it becomes clear that the child is not going to need the funds in the account for a college education, the funds should not be withdrawn and given directly to the person with special needs. Not only can such a gift cause a loss of government benefits, but the distribution for a non-qualified expense triggers state and federal income taxes and a 10 percent penalty for spending the 529 funds on something other than a college education. Because some of these problems can be avoided through the use of other savings devices, it is important to talk with a qualified special needs planner before creating, funding or spending money from a 529 Plan for the benefit of a child with special needs.

What Other College Savings Options Are Available for People With Special Needs?

An alternative to a 529 Plan is to simply fund a properly drafted special needs trust for the benefit of a person with special needs. Anyone can establish a special needs trust for the benefit of a child with special needs, however the funds in the trust do not grow tax-free. The trust is treated as a separate taxable entity and requires an annual tax return. For this reason, many times trusts are  funded at upon the death of a parent(s).

On the plus side, a special needs trust provides much more flexibility than a 529 account in terms of spending the trust assets for the benefit of the child. While a donor may not be able to guarantee that the funds held in the trust will be used entirely for education, there are mechanisms that can be put into a special needs trust to ensure that a child's educational expenses are taken into consideration when funds are distributed, and the donor of the trust can retain some powers over how distributions are made.

Another way to save for college is for parents or grandparents to establish a savings or investment account in their own names and then simply spend the funds in that account for the college education of a child with special needs. Since payment of educational expenses by a third party does not trigger a loss of benefits, this option avoids potential conflicts in terms of account ownership. However, the funds in the account will still belong to the donors, limiting the estate and income tax benefits that make contributions to a 529 Plan so appealing.

If you are interested in setting funds aside so that a person with special needs can attend college, it is important to act as soon as possible. A qualified special needs planner can assist you in mapping a college savings strategy that is right for your family.

describe the image
We are proud to be amongst the first financial planning members of the Academy of Special Needs Planners in the US. This
 article appears in it's original form on the Academy webiste.  We have supplemented the material with additional information and suggestions for our readers.

Talk with us about financing your child's education.   We craft solutions for families with complex situations.

Tags: financial planning, planning for college

Retirement Accounts and Special Needs Trusts

Posted by Patty Manko on Thu, Feb 20, 2014 @ 04:51 PM

 


Beneficiary Designations on Retirement Accounts


At the death of the owner of an IRA or company-sponsored retirement plan, the proceeds are distributed according to the beneficiaries that are listed when the application is signed. Generally speaking, if you are married, your spouse is usually listed as the primary beneficiary. At the owner's death, the spouse will be able to transfer the assets into a spousal IRA rollover. This will enable the spouse to defer the taxes until the funds are withdrawn from the account. If you are not married and your intent is for an individual with a disability to receive any portion of the IRA, it is recommended to have those proceeds paid to a trust that has special needs provisions. 

If a special needs trust is used as the beneficiary of a retirement plan account, the income earned in the trust will be taxed to the trust, usually at a higher tax bracket than an individual tax bracket. The proceeds from a Roth IRA are distributed tax free upon death of the owner. If an owner has a Roth IRA in addition to other retirement accounts, it may be advantageous to have the special needs trust named as beneficiary of the Roth IRA and the other children named as beneficiaries of the other IRA and retirement plan assets.

It is not recommended to have an individual with disabilities named individually as the beneficiary of the traditional IRA or Roth IRA, because an account balance greater than or equal to $2,000 will disqualify him or her for government benefits. Instead, if the owner wants the value of all or a portion of the IRA to be received by a person with disabilities, that person's special needs trust should be named as one of the beneficiaries.

Special Needs Planning Pointer

If you have more than one child and you intend to split your retirement account between all the children, including your child with special needs, you should direct his or her share in the beneficiary designation to the special needs trust. An example would be to have Adam Miller name his wife, Justine, as his primary beneficiary. He would then name two of his children, Kyle and Alyssa, as contingent beneficiaries, each to receive 33% of the retirement account; and he would name the special needs trust created for his third child, Alexia, as a third contingent beneficiary to receive the remaining 34% of the retirement account. Adam would list the special needs trust for Alexia on his beneficiary designation form by including the proper registration, "The Alexia Miller Special Needs Trust Dated January 1, 2007."

Read a Whitepaper from the Special Needs Alliance: Government Benefits and Special Needs Trusts

Tags: Retirement Planning, Special Needs Trusts, financial planning

We are the Money Magazine Family

Posted by Patty Manko on Thu, May 02, 2013 @ 04:48 PM

Money MagazineJohn Nadworny’s Financial Plan for a Family with Special Needs

Featured in Money Magazine

Over the many years, in our presentations about financial planning for families of people with special needs, we always referred to ourselves as NOT the typical  Money magazine family. Times have changed.

Last fall John received a telephone call from Jeff Howe, who was writing an article about financial concerns of families with a child with special needs.  Jeff’s interest extended beyond the story he had been hired to report- his 5 year old son Finn is diagnosed with autism and other significant medical conditions.  Like many others in his situation, Jeff and his wife Alysia were distressed and completely overwhelmed with trying to figure out what it would cost to raise their son and take care of the rest of the family. 

 According to the US Census bureau, nearly 1 in 5 people in the US have a disability, with half of them reporting the disability to be severe. ¹ About 1 in 88 children has been identified with an autism spectrum disorder.²   Given the vast number of families dealing with providing and planning for their loved one with a disability, there are a number of financial planners claiming expertise in special needs. Jeff interviewed and moved beyond several of them before finding John through an online search. Finally, he had called the right person.

 John Nadworny was familiar with scary math: his youngest child James was turning 22, the age at which school districts relinquish responsibility for a special needs child.  James has Down syndrome and John and his family planned and prepared for years to provide James with the means to have an independent and full life. To read about the Nadwornys’ experience planning for their son’s transition to independent living, click here: Diary of a Dream.

John applied his 20 years of experience in financial planning and knowledge of the costs  of a child with a disability and walked the Howe family through a process to help them reach their goals. The result is Paying for Finn: a special needs child, Money, May 2013.

Click the link below to read the full story. 

http://money.cnn.com/2013/05/01/pf/autism-costs.moneymag/3.html?iid=EL

 ¹Americans with disabilities 2010

² CDC Autism and Developmental Disabilities

 

Tags: Special Needs Financial Planning, financial planning, autism

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