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An introduction to special needs financial planning

Mother using laptop while sitting with happy autistic son in living room at home
Maskot/Getty Images/Maskot

Raising a child with special needs can bring joy and challenges in equal measure. Alex Gonzalez and his wife, Simone, know this well because their oldest son, Jake, lives with autism and Asperger syndrome.

Alex sums up his experience as a parent and his guidance as a Thrivent financial consultant with this simple message: “Try not to go it alone.”

“It’s stressful when a parent receives a diagnosis that their child’s physical or cognitive challenges will continue for life,” he says. “It’s normal to feel anger and grief. My wife and I needed to adjust our thinking in those painful times.”

Thanks to a supportive school district and careful planning, at 26 years old, Jake is working full time and living independently. Here is what you can learn from the Gonzalez family.

Create a financial plan unique to your family

It is common for parents to prioritize their child’s needs over their own, especially financially. Studies by the American College of Financial Services indicate that 90% of special needs and disability family members and caregivers admit that caring for their loved one is more important to them than planning for their own retirement. But it could be even more difficult to help your loved ones if your financial future is in jeopardy.

Start by mapping out your own long-term financial needs

Alex recommends parents work with a financial professional to create a financial plan* for long-term clarity. “It’s like the scenario where you’re on an airplane and the flight attendant tells you to put on your oxygen mask first before helping your child,” he says. For example, “If you don’t have the right kind of disability income insurance and become disabled, you will have a harder time helping your disabled child.”

Update your retirement income plans to include your child’s needs

Putting together a solid retirement plan is also vital. From calculating retirement income needs to setting strategies to optimize Social Security or other government benefits, there are many things to consider. “Parents realize that their retirement budget could have an extra line item for their child’s supplemental costs,” Alex says. For example, accounting for the expense of experiences or services that aren’t covered by government benefits such as transportation expenses (car, travel, etc.) or therapy that isn’t covered.

And making sure that your beneficiaries are in good order is critical. Alex tells of a young adult whose parents passed away after naming their son as beneficiary of their 401(k) retirement accounts. If they had a financial professional helping with their plans, the parents would likely have known such a decision would jeopardize their son’s ability to receive the need-based government assistance he qualified for. While a situation like this is able to be remedied, it would likely take time and resources to help ensure your wishes are carried out as you intended.

It’s stressful when a parent receives a diagnosis that their child’s physical or cognitive challenges will continue for life. It’s normal to feel anger and grief. My wife and I needed to adjust our thinking in those painful times.
Alex Gonzalez, Thrivent financial consultant

Leverage the tax-advantaged ABLE account

What is an ABLE account? An ABLE account (Achieving a Better Life Experience Act) was established by Congress in 2014 and offers individuals whose disability began before age 26 a tax-advantaged way to save money without affecting their government benefits.

The law was in response to a potential roadblock that families faced in the strict qualification rules for need-based government assistance. Assets in the child’s name must not exceed the threshold of eligibility to qualify for Supplemental Security Income (SSI), a federal program that provides money for food and housing; and Medicaid, a state and federal program that pays for medical expenses.

The list of ways ABLE accounts may be used includes:

  • Basic living expenses
  • Housing
  • Education and training
  • Transportation
  • Assistive technology
  • Financial management and legal fees

ABLE account earnings grow tax deferred, and withdrawals are free from income tax if used for qualified disability expenses. ABLE accounts are set up through a state or state agency that administers them.

Family members and others may contribute up to the maximum yearly limit of $15,000. Government benefits will not be affected if the account stays under a total of $100,000. Any funds remaining in the ABLE account at the beneficiary’s death may be required to repay government benefits received while the account was funded.

Consider setting up a special needs trust for your child

An irrevocable special needs trust is a more complex planning tool that allows you or loved ones to leave assets to your child without affecting the individual’s government assistance. There are two types of special needs trusts, commonly referred to as first-party and third-party trusts.

First-party special needs trust

A first-party special needs trust is funded with assets from the disabled individual, such as from an inheritance in their name. At the individual’s death, proceeds in a first-party trust may be required to reimburse Social Security and Medicare for services received.

Third-party special needs trust

A third-party special needs trust is funded with assets from other loved ones, such as with proceeds from a life insurance policy. No payback is required from a third-party trust at an individual’s death.

Funds in either type of special needs trust may be used for a wide variety of expenses, including:

  • Education
  • Travel and recreation
  • Assistive and electronic equipment and appliances
  • Companion assistants
  • Vehicles

Special needs trusts are meant to supplement but not replace benefits an individual receives, making it especially important that a trust be properly drafted to accomplish its goals of preserving benefits.

These are not easy conversations, but empathetic financial advisors can help facilitate them as part of a special needs financial plan.
Alex Gonzalez, Thrivent financial consultant

Find the support you need

Every family needs support—both personal and professional. Your inner circle for your family’s journey may Include grandparents, siblings, aunts and uncles. You might also lean on friends, your community and parent support groups.

You also may need to call in experts as well. Depending on your child’s needs and age, seek support from:

  • Your local school district.
  • A disability consulting service that can advocate for you and your child.
  • Housing assistance for special needs adults.
  • Employment agencies that encourage independence.
  • A special needs tax advisor.
  • An attorney for necessary legal documents and trusts.
  • A financial advisor to help you implement your long-term financial strategy.

“These are not easy conversations, but empathetic financial advisors can help facilitate them as part of a special needs financial plan,” Alex says.

Connect with a Thrivent financial advisor to create a comprehensive financial strategy that considers the overall well-being of your family. They can also help you find advocates and legal advisors who can assist your family.

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*Refer to the Thrivent Investment Management Inc. Form CRS Relationship Summary for more information about us; our relationships and services; fees, costs, conflicts, and standard of conduct; disciplinary history; and additional information. Available upon request from your financial advisor or professional and on thrivent.com/disclosures.

Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.
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