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

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

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