ABLE Accounts for Individuals with Disabilities

WHAT ARE ABLE ACCOUNTS?
In late 2014, Congress passed the “Achieving a Better Life Experience Act” (the ABLE Act). This law enabled states to establish and operate ABLE programs so that individuals with disabilities can save money for their future needs while still retaining eligibility for federal assistance programs. These accounts can help pay for qualified expenses, such as education, housing, employment support/training, assisted technology, transportation, and health care (not covered by insurance).

The ABLE accounts (also called 529A accounts) are somewhat similar to 529 College plans. They are funded with after-tax dollars. Their investment gains are not taxed and there is a 10% penalty (as well as taxes due on gains) if the funds are not used for qualified disability expenses.

Unlike 529 College Savings Plans, however, you cannot obtain an ABLE account from another state. If you live in a state which does not have its own program for ABLE accounts, the state may contract with another state to provide them to its residents. Otherwise, you can only open an ABLE account in your state of residence.

WHO IS ELIGIBLE?
To be eligible for an ABLE account, an individual needs to have become disabled before the age of 26. They also need to be receiving Federal benefits under Supplemental Social Security (SSI) or Social Security Disability Insurance (SSDI). Individuals who establish ABLE accounts can only have one account (unlike 529 college plans).

LIMITS ON CONTRIBUTIONS
Contributions are limited to $14,000 per year (not to exceed state 529 limits). The first $100,000 in an ABLE account is not counted toward the $2,000 asset limit for SSI. However, distributions for housing would be treated as income for purposes of the SSI program. Upon the death of the individual, states would be required to recoup certain expenses paid by Medicaid. This is called the Medicaid payback provision.

WASHINGTON STATE
There is a National Committee that is currently working out the details for ABLE accounts. A state work group is being formed to design Washington State’s version by November 1, 2015. Once the details are worked out, the Washington state legislature will consider a bill next session to finalize the program. Hopefully, sometime in 2016, families or adults with disabilities will be able to open an ABLE account.

WILL ABLE ACCOUNTS REPLACE SPECIAL NEEDS TRUSTS?
In many cases, ABLE Accounts will probably not replace Special Needs Trusts. A Special Needs Trust, which was created by a third party using the disabled individuals own assets, is also subject to the state’s Medicaid payback provisions after the death of the disabled beneficiary. However, a Special Needs Trust created AND funded by a third party, for example the disabled beneficiary’s parents or other family members, is generally not subject to the Medicaid payback provisions. So, it would make sense to use a Special Needs Trust in this case rather than an ABLE account because assets can be inherited by surviving family members or other beneficiaries after the death of the disabled individual. In addition, a third-party Special Needs Trust is not limited in annual contributions or account balance limitations like an ABLE account.

Implementation of the ABLE Act is still a work in progress. Estimates are that the first ABLE Accounts in Washington State will be opened some time in 2016 and further information should be available in the near future.

As a mother of a young adult with special needs, Mary Ann recognizes the financial planning challenges faced by families with special needs children. She takes great pride in helping families quantify and plan for current and future needs. For families with special needs, financial planning is not an option…it is a necessity. If you have any questions or need help preparing for the future, please call Mary Ann.

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These Professionals Need Financial Advisors

As everyone from tax attorneys to gamblers can attest, it’s not what you make, it’s what you keep. Still, the more you make, the more it’s easier to keep; at least in theory. You probably don’t have to look hard to find someone you know who works an unremarkable job, yet somehow owns multiple houses and a thriving stock portfolio. Conversely, the high-salaried professional who carries overwhelming debt is almost a cliché.

Revelation: If you’re smart enough to complete med school, pass the bar exam, earn an engineering degree, or start and run a successful business that doesn’t preclude making the same financial errors that the less educated often do. That’s why such professionals should (and often do) hire a financial advisor to help manage their planning, finances, investments and tax planning.

Financial ignorance among six-figure professionals and entrepreneurs isn’t necessarily conscious, nor does it indicate some sort of intellectual limitation. Quite the opposite, in fact. Devoting oneself to one’s profession often leaves precious little mental room for anything else, including financial competence. Accordingly, here is an overview of what kinds of professions are most likely to enlist the services of a financial advisor or a certified financial planner.

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Planning for a Divorce

You might say “who would ever plan for a divorce.” While no one plans to divorce, the fact is that the divorce rate in the United States is about 50% which translates to about 2 million divorces annually. If you are in the midst of a divorce, understanding the process and knowing what to expect can reduce stress and make the process easier. It is important to plan before, during and after a divorce.

The divorce process consists of three phases: filing the necessary paperwork; discovery (research into the financial background of both you and your spouse); and disposition (possibly through mediation but sometimes through a trial). The top ten things to consider before filing for divorce are:

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The Physician’s Financial Health – Part 2: Asset Protection Strategies

Physicians – the core of ABFS’ clientele for 30 years – face many of the same challenges as our other clients, especially those who are business owners. But physicians also face unique challenges. Nowadays, even after a decade of education, most physicians work long hours for increasingly lower pay. Their dedication to the well-being of patients unfortunately often comes at the expense of their own financial health. As they are required to see more patients in less time (and for less money), many physicians have precious little time and energy left for their spouse/family, let alone researching financial strategies. This series of articles is designed to provide physicians with concise, valuable tips for tax savings, asset protection, and more. Of course, some of it is applicable to other people as well (e.g., items 2 and 3 below), but it is of special importance to physicians and their families.

The practice of medicine does not always lead to positive outcomes. That uncertainty, combined with our litigious society, make most physicians feel like they have targets on their backs. The first line of defense against lawsuits, of course, is to have good practice protocols and malpractice insurance. Beyond that, however, the best choice of tools to protect assets from lawsuits is less clear. The search for one “silver bullet” of asset protection leads some physicians to fall prey to unscrupulous attorneys or insurance agents promising the best of everything—protection from creditors, income and estate tax savings, easy access, and high investment returns—in one strategy.The truth is that asset protection always involves trade-offs—between the amount of protection, liquidity, tax savings, and/or returns. Before getting caught up in exotic protection strategies like offshore trusts, make sure you are taking advantage of the most basic strategies to protect your assets from lawsuits. They may be all you need until/unless you have more than several million dollars of assets. Consider the following examples (in no particular order):

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The Physician’s Financial Health – Part 1: Maximizing Tax Savings with Qualified Plans

Doctor

Physicians have been the core of ABFS’ clientele for 30 years.  They face many of the same challenges as our other clients, especially business owners, and they also face some unique issues.   After dedicating more than a decade to education, just to begin practicing, most physicians work long hours for increasingly less pay these days, and their dedication to the well-being of patients often comes at the cost of maintaining their own family’s financial health.   Increasing bureaucracy, and the need to see more patients in less time (and for less money), leaves little time and energy for a spouse/family, let alone researching financial strategies.   This special series provides some key information for physicians on tax savings, asset protection, and more.   Much of it, however— like this first one— applies to many others as well.

Are you truly maximizing your tax-deductible contributions? Almost everyone puts some money into “qualified” retirement plans (pension, profit sharing, IRA, etc.), but some physicians and other business owners fail to maximize the amount (potentially over $100,000 a year!) they contribute.

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All Special Needs Trusts Are Not Created Equal

Special Needs Trusts (also known as a Supplemental Needs Trusts) are created for various reasons. Examples are: a parent creates a trust to provide for a disabled child’s long-term needs; a trust is created to deposit proceeds from a personal injury settlement; or a trust is created for a person with significant assets who becomes disabled and wants to qualify for needs-based government benefits without having to first “spend” down assets. A person can lose their Supplemental Social Security (SSI) and possibly Medicaid if they possess more than $2,000 (this number varies from state to state) in assets. Hence, a Special Needs Trust is a way for a person with a disability to receive financial support while remaining eligible for SSI and Medicaid.

Money from a Special Needs Trust cannot be used to pay for food or shelter (because SSI pays for these items). However, the funds from a Special Needs Trust can be used for anything not already covered by SSI or Medicaid. The funds from a Special Needs Trust can be used to pay for furniture, a computer, education, equipment, transportation, entertainment, travel, out-of-pocket medical and personal care expenses, etc.

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The American Tax Relief Act of 2012 – Summary

Below are some highlights of the Act that was passed and how they might affect you or your family. While the summary is not all inclusive, it should give you some tax planning tips to discuss with your Financial Advisor at Appropriate Balance and/or your CPA.

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In-Service 401(k) Rollovers

As expressed in the May/June 2012 issue of “Eye on Money,” some 401(k) plans have high fees and expenses. In addition, the investment choices available in these retirement plans are sometimes limited. As a result of TIPRA (Tax Increase Prevention Reconciliation Act), tax laws now permit in-service distributions from your retirement plan while you continue working. This money can be distributed into a self-directed IRA Rollover account.

Not all company-sponsored retirement plans offer In-Service 401(k) withdrawals/rollovers. To find out if your company-sponsored retirement plan offers In-Service 401(k) rollovers, contact your plan administrator or ask for a copy of the Summary Plan Document. There may be some additional requirements such as age (typically after 59 ½) and eligibility (employee must have been a participant in the plan for five years or the funds have to have been in the plan for two years).

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The Continuing Evolution of the 401(k) Plan

According to the Investment Company Institute, as of 12/31/2011, over $3.1 trillion was held in employer sponsored 401(k) plans, in the U.S. This figure being all the more impressive when you consider the advent of the employer sponsored 401(k) plan was just over 30 years ago. Over the years 401(k) plans have evolved to meet the service demands of plan sponsors and participants. Technology has helped foster the development and evolution of the service features offered by most plans. One such development was daily valuation. Until the late 1980’s, most plans were only valued quarterly; which also meant that participants could only make changes to their investment selections quarterly. The outcry for daily valuation came after the crash of 1987. Many participant investors rushed to capitalize on the 20+% decline in market value in October, 1987; only to later find out that their adjustments couldn’t be facilitated until the end of the year; at which time the market had recovered significantly.

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