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Special Savings Accounts Deposit A More Secure Future For People With Disabilities.
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Copyright 2008 Gale Group, Inc.All Rights ReservedASAPCopyright 2008 EP Global Communications, Inc. The Exceptional Parent September 1, 2008
SECTION: Pg. 88(2) Vol. 38 No. 9 ISSN: 0046-9157
ACC-NO: 186900968
LENGTH: 1019 words
HEADLINE: Special savings accounts deposit a more secure future for people with disabilities.
BYLINE: Ehlert, Mary Anne
It would be a first for families of people with disabilities-a tax-free way for them to save a substantial amount of money without losing their much-needed government benefits and access to care. Congresspresently is considering three savings account bills. All of them are advantageous to the special needs community, especially people withserious disabilities, promoting financial freedom and greater independence.
Proposed Savings Accounts' Summary
The special savings accounts would create a first-ever, tax-exemptway for parents and guardians to save for the future of their loved one with special needs. The structure would be similar to 529 accounts set up to pay for future college expenses or individual retirement accounts (IRAs). The proposed savings accounts would amend the Internal Revenue Code of 1986 for family members with disabilities.
Two of the bills are very similar. One (HR 2370) was introduced last year by Rep. Ander Crenshaw, a Republican from Florida. A Senate version (S 2743), authored by Sen. Robert Casey, a Democrat from Pennsylvania, and Sen. Orrin Hatch, a Republican from Utah, set sail in the spring. Both measures propose Financial Security Accounts (FSA), which accrue tax-free interest throughout the life of the beneficiary. Families would be able to contribute up to $500,000. The money in theaccount could be used to pay for a number of essential expenses including medical care, education, housing, employment training and support, assistive technology, and transportation needs.
Another measure from the Senate (S. 2741) introduced in the springtoo, this one by Sen. Chris Dodd, a Democrat from Connecticut, suggests Disability Savings Accounts (DSA). Under this plan, up to $1 million can be deposited into the account, but only $250,000 of it would be considered tax-free savings. The bill also has a narrower list of qualified expenses compared to the Casey-Hatch bill, namely housing and transportation costs are limited. Funds from college savings plansand special needs trusts for the same beneficiary can be rolled intothe DSA without penalty. Another benefit of this plan is low income earners will receive a refundable matching tax credit of up to $1,000for their contributions to the DSA. This bill, however, has a Medicaid payback provision included in the initial draft, which the other bills do not.
Other issues still needing clarification in the different plans asthey progress:
* Will all contributions be deductible or have tax credits available?
* What kind of penalty might be assessed if the funds were not used for qualified expenses?
* What kind of reporting will be required?
* How flexible will the investment choices be?
Some Concerns
All of these measures would allow the savings to occur in an individual trust fund; pooled trusts are not considered. Also not mentioned in these bills is the type of investments the accounts can hold. These exclusions of pooled trusts and investment designations might impact the way people with disabilities are able to maximize the benefits of setting up one of these savings accounts.
Pooled trusts allow for lower cost investing if the funds are pooled. Since many families may be setting up smaller accounts, it would be advantageous to allow pooling of funds.
In addition, there are a number of ways to invest. Like 529 college savings or IRA plans, there might be only a certain amount of fundsto choose, limiting a person's ability to switch to a more financially attractive investment option. It's not unusual to have a limited menu of investment choices with various savings accounts, as noted with 529 and IRA plans, but is this the best structure for a population of people who mostly earn low-income wages? It remains to be seen, but what's certain is the passage of one of these bills would give people with disabilities and their families more options for investing and adding more money to their safety net, tax-free. Since we have learned over time the importance of proper investment allocation to provide portfolio stability, the investment choices and options will be animportant component.
Savings Account Versus Special Needs Trust Fund
These proposed savings accounts sound a lot like special needs trust funds, but there is a difference. Special needs trust funds are taxed, the proposed savings accounts would not be, yet the special needs trust fund would complement the proposed savings account nicely. The trust fund would still be applicable if families want to set aside more than $250,000 or $500,000 (depending on the measure) for their loved one. So a special needs trust will still play an important role in planning for an individual with special needs. It will still be important for families to develop a life care plan, so that the amount needed for future care is estimated in the family's financial plan. The combination of these proposed new savings accounts and the specialneeds trust fund would help provide the most flexible options for the individual with the disability.
Congress is expected to vote on the bills during its fall session,but taking action on such a measure might be challenging in a presidential election year. Still, it's encouraging that there is bi-partisan support for this concept. Families with special needs should talk about these savings accounts with their local legislators. Supportingthe idea is worth the effort. These savings accounts will be an additional resource for families to provide life-enhancing services for their loved ones, giving them even more control over their future.
Mary Anne Ehlert is founder and president of Protected Tomorrows, a nationwide network of advocates for the special needs community. For more than 15 years, Ehlert has worked with hundreds of families to address the future care needs of the individual with disabilities andhas inspired real change in the special needs community through presentations and workshops on life planning, focusing on family communication, special needs trusts, and government benefits. Ehlert can be reached at mehlert@protectedtomorrows.com or 847- 522-8086.
By Mary Anne Ehlert, CFP(R)
LOAD-DATE: November 13, 2008
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