3 Financial Aid Facts for Families of People with Disabilities

Posted by Haddad Nadworny on Wed, Jun 12, 2019 @ 06:00 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

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Filing FAFSA, filling in a College Scholarship profile or just finding out all you can about student debt forgiveness programs? Here is some information specific to ABLE Accounts, Special Needs Trusts, Social Security Benefits and the student loan process. 

Before we get started, a special shout-out to Mary Rubenis of the Massachusetts Educational Financing Authority (MEFA), sponsors of the Attainable Savings PlanSM  for contributing her insight and key  information. 

A Little Background Info about the ABLE Account & Special Needs Trusts:

The ABLE (or 529A) account is a tax advantaged account for individuals with a disability to pay for qualified disability expenses.  Unlike a typical 529 plan which requires funds be spent on qualified higher education expenses, the funds in an ABLE account may be used to pay for qualified expenses related to living with a disability. Qualified disability expenses may include education, transportation, housing, employment training and support, personal support services, health, basic living and assisted technologies and related support.

As of 2018, it is allowable to rollover up to $15,000/year from a beneficiary’s 529 account into their own or their family member’s ABLE account without penalty.  To read about the basics of the ABLE account, as well as suggested strategies and case studies that use the ABLE, click here

 A Special Needs Trust (SNT), also called a supplemental needs trust, is a vehicle to provide monetary support for a beneficiary without effecting their eligibility for needs-based government benefits, e.g. Social Security Income and Medicaid.  The beneficiary will not have access or control over the money in a SNT.

3 Financial Aid Facts

1. Reporting requirements for Free Application for Federal Student Aid (FAFSA)

FAFSAGuidance from the Federal Student Aid Office states that ABLE accounts, along with interest income and distributions, should be excluded as assets on the beneficiary’s FAFSA. ABLE accounts were created to supplement, and not to replace, eligibility for federal means-tested benefit programs. ABLE accounts would also not be reported on a sibling’s FAFSA, as the assets are considered those of the beneficiary, not the parents.

SNTs are treated as any other trust fund for the purposes of FAFSA and need to be reported. Restrictions on distributions from a SNT are imposed by the grantor of the trust and unless specifically excluded, these funds may be dispensed by the trustee to pay for educational expenses for the beneficiary.  The assets in the SNT are not included on the beneficiary’s siblings’ FAFSA.

Social Security benefits that are not subject to taxation do not have to be included on FAFSA. SSI recipient’s income levels are generally below the taxable threshold, so SSI generally does not need to be reported. If you receive SSDI and have substantial income, your benefits may be taxed at the federal level. For example, if you are single and your income is more than $25,000 per year but less than $34,000, you would have to pay taxes on about half the value of your benefits. If you earn more than $34,000 (or married and earn more than $44,000), 85% of your benefits could be taxed.

2. Reporting Requirements for College Scholarship Service (CSS ) Profile

The Federal Student Aid Office has not yet provided guidance on reporting assets in a SNT or ABLE. Currently, the CSS/Financial Aid Profile does require reporting the assets of siblings and may require the disclosure of assets in a SNT and ABLE.  In these circumstances, families should give details of how these funds are used in the special circumstances section of the application and ask each college for a professional judgment review.  While some financial aid departments will ignore the assets in the trust, most will not.  They may however, consider the high costs of dependent care when making their grant determinations.

3. Student Loan Repayment

student-loan-debt-1160848_960_720If their student loan covers a time period during which the individual had an ABLE account open, repayment may be considered a Qualified Disability Expense and be paid from the ABLE.

If you become totally and permanently disabled (TPD), you may qualify for a TPD discharge of your federal student loans.  Refer to DisabilityDischarge.com for more information. 

Also, If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness Program. Refer to StudentAid.ed.gov for more information.

Sources:

MEFA, Massachusetts Educational Financing Authority

Fidelity Investments, Attainable Savings Account

Evisors.com

Ableforalll.com

Nolo.com

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 specific individualized tax or legal advice.  We suggest that you discuss your specific situation with a qualified tax or legal advisor. 

Prior to investing in an ABLE or 529 account investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s ABLE program.  Withdrawals used for qualified disability expenses are federally tax free.  Tax treatment at the state level may vary.

Investing involves risk, including loss of principal.

 

 

Tags: transition planning, Special Needs Trusts, planning for college, ABLE Account, FAFSA, Planning for college with disabilities

5 Little Known Facts: The ABLE Account and Social Security

Posted by Haddad Nadworny on Wed, Jun 05, 2019 @ 06:00 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

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  1. May Social Security benefits be deposited into an ABLE account? 

    • adult-blazer-cellphone-2_1081230Social Security Income (SSI) is a means-tested program. SSI is intended to pay for living expenses for individuals with disabilities who would otherwise have a difficult time paying for food & shelter. It makes sense to segregate the SSI in an account used to pay for living expenses and not deposit into the ABLE account. One exception might be If the recipient is getting close to having $2000 in resources, they may choose to deposit some funds into their ABLE account.
    • Social Security Disability Income (SSDI) is an entitlement (not means-tested) program based upon the beneficiary’s earnings record. You may deposit SSDI into an ABLE account.
       
  2. What happens when a child has a disability under age 18, receives SSI and opens an ABLE account, and then becomes gainfully employed after age 18?

  • The Supplemental Security Income (SSI) program pays benefits to disabled adults and children who have limited income and resources. The Social Security Administration has a two-part definition and you must meet both parts to get benefits.

    1. If a person of any age is able to earn Substantial Gainful Activity (SGA), which is currently $1,220 gross per month, they will not be eligible to receive benefits from Social Security.
    2. The person must have a physical or mental condition expected to last 12 months or result in death that prevents them from earning SGA.

  • While this person may lose their SSI benefit, they may continue to contribute to their ABLE account- in fact, the ABLE to Work Act allows them to potentially contribute more! They may contribute the $15,000 annual limit PLUS their adjusted gross income or $12,140- the current federal poverty level, whichever is less, meaning they may contribute up to $27,140 in 2019. There is one caveat:  they are not allowed to participate in ABLE to Work and also participate in a workplace retirement or 401K plan.

  1. What is the status of child support and the ABLE account?

    • Child support is considered unearned income. Unearned income including pension, 401K, worker’s compensation payments, unemployment compensation, veteran’s benefits, rental income and child support payments can be deposited into an ABLE account. These income sources also follow the usual income counting rules for the public benefits program and cannot qualify you for additional benefits.
  1. Can you use the ABLE account to pay for housing expenses and avoid in-kind supports?
    • You can draw money from an ABLE account for housing expenses without it being considered an illegal transfer of funds. This would allow a parent or other family member to deposit money into the ABLE account to help pay living expenses.  If the money is given to the account holder directly, it is considered an In-Kind Support and may impact SSI.

  2. What is the status of Medicaid payback in Massachusetts and other states?

  • The Medicaid payback provision varies from state to state.
  • In Massachusetts, the state “may or have the potential” to claw back a portion of the proceeds an individual received from Medicaid from their ABLE account if they have one(minus any premiums they paid). In terms of ABLE, this claw back exists only during the period the ABLE account was in existence before their death. If they received Medicaid prior to the ABLE account-that portion is not included in the claw back- only the time period during the ABLE account applies. Before the claw back takes place, when an ABLE account owner passes away, the money in the ABLE account goes to the person’s estate. Prior to the claw back, the estate can pay funeral/burial expenses and any outstanding disability related expenses with the ABLE account however.  A person who receives Medicaid over a lifetime is likely to receive hundreds of thousands of dollars- with a smaller claw back potential.  Any potential claw back can be weighed with the benefits of ABLE overall.
  • Medicaid payback may only be avoided with a third-party special needs trust. Upon the beneficiary’s death, the proceeds will go to the secondary beneficiaries.

Read ABLE Basics, Strategies & Case Studies

Sources:

MEFA, Massachusetts Educational Financing Authority, Attainable Account

Fidelity Investments, Attainable Account

Social Security Administration, https://www.ssa.gov/benefits/ssi/

U.S. Dept. of Health and Human Services, https://aspe.hhs.gov/2019-poverty-guidelines

 

 

 

 

 

 

Tags: disability supports, Government Benefits, ABLE Account, Social security income

Reassessing Your ABLE Account Investment Choices

Posted by Haddad Nadworny on Sat, Jan 19, 2019 @ 07:00 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

We are committed to presenting complimentary educational workshops to  organizations and parent groups. We are currently booking presentations for the Spring 2019 season. Please click here to email Alex Nadworny or call 781-756-1804 . 

Updated June 30, 2021

Reassessing Your ABLE Account Investment Choices

ABLE

As part of an advisory group implementing the ABLE account in Massachusetts, we learned that many people opening ABLE accounts stopped the application process when they were asked to determine the investment choices for their contributions. This behavior raised a concern that individuals enrolling in the ABLE program might not have adequate prior experience or knowledge of financial matters to confidently make the best selection for their situation.

Depending on when you put funds in, your account may have increased in value or have taken a hit.  For investors with little experience, it may be a shock to observe 90 cents where they had invested a dollar a short time earlier.  Regardless of how much money is in the account, it is critical to invest the funds in the ABLE account to meet the goals of the account owner.

Key Considerations for Your Investment Choices

  1. When determining your asset allocation (the balance between stocks, bonds and money markets), think about your  personal ability to withstand a decline in your account balance and your tolerance of market volatility .
  2. Be sure to align your asset allocation with the timing of your goals; the investments in the account should match how the account is being used.

Depending on the goals for the account, the funds may be invested to provide a mix between funding for transactions and growth for the future. For example, if a portion of the funds in the ABLE are to be used for transactions, you should consider investing these monies in very low risk assets, such as money market funds.  Asset allocation should be a thoughtful and informed evaluation; federal law allows account owners to change investments in their ABLE account twice per year.  Be sure you are comfortable that the money is invested to meet both your short-term needs and your long-term goals. 

Case Study: Paul's ABLE Account Investment Choices

Paul and all other elements of this example are fictitious and all investment results are hypothetical.

Paul is an ABLE account owner. He works and has contributed about $5,000 of his earnings to his ABLE account over the course of the year. Paul was saving money in his ABLE to buy furniture for his apartment, and his parents decided to contribute $10,000 toward that goal to Paul’s ABLE account. Paul chose a growth portfolio for his ABLE, investing 70% in stocks and 25% in bonds and 5% in money market securities. At the end of the year, the stock market had taken a fall and the $15,000 contributed to the account over the course of the year was worth only $12,000 (market activity and return is hypothetical).

While Paul and his parents believe his account will recover the $3,000 loss over time, he has to rethink and/or postpone the furniture purchase he hoped to make in the spring. Since Paul had a near-term use for the funds he invested in his ABLE account, he needed to choose investments that may have offered a lower return but had little to no risk to this principal. He could have chosen the growth portfolio for a portion of the contributions and kept the remainder in another, more conservative fund or money market.

Like Paul, many individuals who have opened ABLE accounts may not be overly experienced with investments and should review and reassess their investment choices based upon the key considerations outlined above.

For more information please visit our resource page, How to use The ABLE (529A)  Account in Special Needs Planning

 

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 specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Prior to investing in an ABLE account investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's ABLE program. Withdrawals used for qualified disability expenses are federally tax free. Tax treatment at the state level may vary.

Investing involves risk including loss of principal.

No strategy, including a diversified strategy, assures success or protects against loss.

Asset allocation does not ensure a profit or protect against a loss.

 

 

 

 

Tags: ABLE Account

ABLE Account Contributions and Social Security Income (SSI)

Posted by Haddad Nadworny on Sat, Aug 18, 2018 @ 08:00 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFAWorkshops Calendar

Updated June 29, 2021

Protecting Social Security Eligibility

social_security_logoAdults with disabilities become eligible for social security at age 18. Social Security (SSI) provides adults with disabilities a monthly benefit payment and health insurance if they meet a low income and asset threshold. To maintain eligibility for SSI benefits, an individual cannot have more than $2000 of resources in his or her name.  This includes cash, bank accounts, stocks, and U.S. Savings bonds.  To read a summary of SSI policies regarding the ABLE account, see the Social Security website..

Prior to your child's turning age 18, and before applying for SSI, make certain that they meet this requirement. One strategy could involve transferring money to an ABLE account as this can help reduce savings beneath the $2,000 threshold and avoid the spend-down process.

Case Study 1: When an SSI recipient receives an inheritance.

The Situation:

inheritance_pexels-cottonbro-6851698During the settlement of an estate, the personal representative (PR) - also known as the executor - of the estate discovered one of the beneficiaries, whom we will call Katie, was receiving government benefits. The PR was required to distribute $33,000 to Katie prior to the projected closing of the estate in February of the following year. While Katie could definitely use the funds to pay for furnishings in her home and some much- needed dental work, receiving the inheritance directly would  bring her above the $2,000 asset limit and disqualify her from the important benefits she was receiving. 

The Options Considered:

In discussing the current situation with Katie and the PR, we discussed options for the purpose of educating the parties involved of establishing a 1st party supplemental needs trust (also known as a d4A or Payback trust) where the beneficiary could transfer the entire inheritance to the trust and continue to receive her benefits. 

We also discussed the option of distributing a portion of the inheritance this year and then again next year using an ABLE account. If the PR distributed $18,000 this year, the beneficiary would be able to buy new furnishings that she needed with about $2,000, get the needed dental work for another $2,000, and deposit $15,000 (2021 limit) into an ABLE account, assuming she had made no prior deposits into the ABLE in this year. The PR would then need to make the final distribution of about $15,000 to the beneficiary by the February of the following year. If the PR does this, the beneficiary could then keep $1,000 in her savings account (still under the $2,000 limit) and add an additional $15,000 to her ABLE account. The beneficiary would then able to use these funds for qualified disability expenses as needed without losing her SSI income and other benefits.

The Benefits of Using an ABLE Account:

Because of the amount of the inheritance, Katie did not need to go through the expense of hiring an attorney to establish a 1st party supplemental needs trust, find a trustee, file taxes, and then have to ask someone for money when she needed it.  She was already living independently and managing her own expenses fairly efficiently.  The ABLE account allowed her to continue to receive her benefits and use the funds in the account as she needed them.

Case Study 2: SSI Impacted by an ABLE account

Source: ABLE National Resource Center

Mario has $101,500 in his ABLE account and $1,500 in his checking account. Since his countable resources are now $3,000 ($1,500 overage from ABLE account + $1,500 from checking account), his ABLE account has caused him to exceed the resource limit and his SSI payments are indefinitely suspended.

Mario continues putting money in his ABLE account for 24 more months and his indefinite suspension continues. Then, with the account balance standing at $107,000, he takes a $21,000 distribution to purchase a new car (a Qualified Disability Expense), dropping his account balance to $86,000 at a time when his checking account balance stands at $850. Since the ABLE account balance is below $100,000 it is once again exempt and his only countable resource is the $850 in his checking account. Mario’s SSI payments will be restored without the need for a new application. Mario had Medicaid eligibility continue when his SSI payments were suspended for 24 months based on excess resources caused by the ABLE account.

To read additional information visit our webpage or download our E-Book, The ABLE Account and Special Needs Planning

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 specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.


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.

Investing involves risk including loss of principal. Prior to investing in an ABLE account, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits available for investments in such state’s ABLE program.

 

 

 

Tags: disability supports, government supports, ABLE Account, Social security income

ABLE to Work, 529 Rollovers and the Saver's Credit

Posted by Haddad Nadworny on Sat, Aug 04, 2018 @ 08:30 AM

 

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

Workshops Calendar

Updated June 30, 2021

ABLE to Work, 529 Rollovers and the Saver's Credit

ABLESome major changes to the ABLE, first implemented in 2018 are:

  1. ABLE to Work- additional allowable contributions by the beneficiary as a result of employment.
  2. Ability to Rollover funds from a 529 College Savings account to an ABLE -529A - account.
  3. Savers Credit - Access to the Retirement Savings Contribution Credit.

1. ABLE to Work

The ABLE to Work provision was passed by Congress as part of the Tax Cuts and Jobs Act of 2017.  It is currently set to expire on January 1, 2026. Gainfully employed people with disabilities, who meet the qualifying requirements, have the opportunity to save and control their own money without fear of jeopardizing benefits. 

  • This provision allows an ABLE account beneficiary who works and earns income to contribute funds above the $15,000 annual limit.

  • The additional contribution may be up to the lesser of: the account beneficiary's earned income or the federal poverty line, which for 2021 is $12,880. This means it is possible to contribute up to $27,880 to an ABLE account in one year. 

  • Two additional elements of the law to be aware of when considering eligibility for the additional contribution:

    • (1) the ABLE beneficiary may not be a participant in their employer-based retirement fund, including if an employer makes contributions to the fund on their behalf.

    • (2) the Beneficiary's employment earnings deposited in an ABLE account are still counted in terms of Substantial Gainful Activity (SGA) or earned income, and will be taken into consideration when  determining eligibility for certain public benefits. 

Case example:

Sheila, an ABLE owner has a job and made $16,000 in 2020. She does not participate in her employer's retirement plan. Although her parents put $15,000 into her ABLE account in 2020, Sheila was able to  contribute an additional $12,880 of her own money into her ABLE account.

2. 529 Fund Rollovers

This provision allows funds in a 529 College Savings account to be rolled over into an ABLE - also known as a 529A account. It is currently set to expire on January 1, 2026. 

  • The ABLE account beneficiary to receive the rollover funds must be either:
    • the beneficiary of the 529 College Savings Account or
    • A "family member" of the beneficiary of the 529 College Savings account
  • The rollover funds are subject to the annual contribution limit of $15,000 for any given tax year, given that no other contributions have been made into the account that year.

Example:  Max, a teenage child just received a diagnosis of autism. When he was born his parents started a college savings fund (529) for him but now it is not known whether he will go to college or not.  An ABLE account may be opened for Max, assuming he meets the criteria, and his parents may now roll over the 529 to an ABLE account without any penalties or taxes due on earnings.


3. Saver's Credit- also known as the Retirement Savings Contributions Credit.

The Saver's Credit was designed to provide an incentive for low and middle income individuals to save. It is currently set to expire on January 1, 2026. 

An ABLE owner contributing to their own account, and meeting the following eligibility requirements, may claim this credit toward taxes owed with the maximum value reducing the taxes owed to zero. The ABLE owner must be:

  • Age 18 or older
  • Not a full time student
  • Not claimed as a dependent on another person's return

Details about the Saver's Credit:

  • Maximum credit is $2000 for an individual and $4000 for a couple
  • Percent of your contribution allowed to take is reduced as your AGI ( Adjusted Gross Income) increases

 

This chart outlines the credit for each category of tax filer:

 

2021 Saver's Credit      
Credit rate

Married-

filing jointly

Head of 

Household

All Other

Filers*

50% of your

contribution

AGI less than 

$39,500

AGI less than

$29,625

AGI less than

$19,750

20% of your 

contribution

$39,501-

$43,000

$29,626 -

$32, 250

$19,751-

$21,500

10% of your

contribution

$43,001-

$66,000

$32, 251-

$49,500

$21,501-

$32,500

0% of your

contribution

More than

$66,000

More than

$49,500

More than

$33,000

 Source: https://smartasset.com/taxes/understanding-savers-tax-credit 

Example: You are an ABLE owner working and making $20,000. You have put $2000 into your ABLE account this year.  You can take a credit of 50% of your contribution,  equal to $1000 in this case, to reduce your tax liability. If possible, you can use this $1000 to contribute further to your savings. 

For further information, please contact us or visit the ABLE National Resource Center

 

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 specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. [ add line space ] Prior to investing in an ABLE account investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's ABLE program. Withdrawals used for qualified disability expenses are federally tax free. Tax treatment at the state level may vary. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

 

Tags: ABLE Account

Grandparents Gifts to an ABLE Account

Posted by Haddad Nadworny on Sat, Jun 10, 2017 @ 08:04 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

Workshops Calendar

Updated June 30, 2021

Grandparent's Gift to an ABLE Account

 

cane-elder-elderly-33786The ABLE account provides grandparents with the opportunity to gift to their grandchild with a disability in the same manner as they contribute to their typical grandchild's 529 account. 

Case Study: Generous Grandparents 

The Situation:

Our client has a strong belief in higher education and set the goal of establishing educational accounts for each of their grandchildren soon after they are born. They have just celebrated the arrival of their third grandchild. However, this beautiful baby boy was born prematurely and with significant health issues which will likely cause developmental delays.  It is already known that his hearing has meaningful, and perhaps total, impairment. 

Options to Consider:

While the ABLE account is an option for these generous grandparents to consider, they must be mindful of some of the limitations of the ABLE account that do not apply to 529 accounts. These limitations include:

  1. An individual may only own one ABLE account. In this case, if our clients opened an ABLE account for their grandson, his parents or his other grandparents would NOT be able to open a separate ABLE account for him. 
  2. They are allowed up to the $15,000 contribution limit (2021) to fund the ABLE account.
  3. If the balance in the ABLE account exceeds $100,000, the individual's Supplemental Security Income (SSI) eligibility is impacted. 

Another option for our clients to consider is to gift the funds directly to their grandson's parents and have them specifically earmarked for the benefit of this grandchild.

Should the grandparents want to take a further step in gifting, they may want to explore the option of creating a Supplemental Needs Trust (also known as a 3rd party Special Needs Trust) and purchasing life insurance on their lives to fund the trust upon their death(s). 

These are a few common strategies we discuss with families.  There are additional strategies and considerations grandparents may wish to explore with their team of legal and financial advisors to determine the most appropriate option to gift to their grandchild with special needs.

For more information please visit our resource page, How to use The ABLE (529A)  Account in Special Needs Planning

 

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 specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.

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.

Investing involves risk including loss of principal. Prior to investing in an ABLE account, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits available for investments in such state’s ABLE program.

 

 

Tags: ABLE Account

Using the ABLE Account: Case Study - For Representative Payees Managing Income & Social Security Benefits

Posted by Haddad Nadworny on Sat, May 20, 2017 @ 08:02 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

Workshops Calendar

Updated June 30, 2021

Representative Payees Managing Income and Social Security Benefits 

ABLE.pngThe ABLE is a great tool to help keep a balance below $2,000 in a Representative Payee (or an Individual's) checking account.

Who/what is a representative payee? A representative payee is a person, usually a family member or friend but may be an organization, appointed by the Social Security Administration to help beneficiaries manage their social security benefits.  

The following lists the required duties of a payee.

Required Duties:

  • Determine the beneficiary’s needs and use his or her payments to meet those needs;
  • Save any money left after meeting the beneficiary’s current needs in an interest bearing account or savings bonds for the beneficiary's future needs;
  • Report any changes or events which could affect the beneficiary's eligibility for payments;
  • Keep records of all payments received and how you spent and saved them;
  • Provide all records of how payments are spent or saved to SSA upon request;
  • Report to SSA any changes that would affect your performance or your continuing as payee;
  • Complete reports accounting for your use of payments, as required;
  • Return to SSA any payments to which the beneficiary is not entitled; and
  • Return to SSA any payments saved when you are no longer the representative payee for the beneficiary.

*Source: Social Security Administration

For more information about Representative payees, visit https://www.ssa.gov/payee/?tl=2

 

Case Study

The Situation:

mother son_pexelsOur client called and was very distressed that she had lost her son’s SSI income due to having more than $2,000 in his representative payee account.

The Options We Considered:

Before the ABLE was launched, our first go-to would have been to think creatively about items or services her son could both benefit from and pay for.  We asked if there was anything he needed that she could spend the extra money on? She had already purchased a new computer for him as well as some new winter clothes. He really did not need much of anything else.

She could put the additional money into his already established and funded first party supplemental needs trust. However, the trust held money he had inherited from his grandparents and she considered the SSI benefits “his money”.

Now, an option to be considered would be the ABLE Account, which would allow for contributions of excess funds above the $2000 threshold in the representative payee account.

The Benefits of Using an ABLE Account:

The ABLE account savings option allows contributions up to $15,000/year into the account, to be used for the beneficiary's short term needs or invested for longer term needs. As long as the account, housed in Massachusetts, remains under $100,000, her son’s benefits will not be impacted.

When reviewing the investment options with her, we reminded her to choose the investments best suited to her son's use of the funds in the account.  Funds used to pay expenses in the nearer term should ideally be placed in an investment that will have very low volatility, and may offer a lower return, so she will know the money will be there when needed.  To save for the longer term, she may want to select a fund that has had greater volatility but also greater returns. 

For more information please visit our resource page, How to use The ABLE (529A)  Account in Special Needs Planning

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 specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.

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.

Investing involves risk including loss of principal. Prior to investing in an ABLE account, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits available for investments in such state’s ABLE program.

 

Tags: ABLE Account