What Parents of Special Needs Children Need to Know About Financial Planning
Running a household is no small feat, and it can become even more challenging with each new addition. Finances are often a significant struggle for parents, especially when their children require special medical care or other expensive investments. This is why smart financial planning is even more crucial for families of children with special needs. Here’s what parents need to know about financial planning with the family in mind.
Insurance is a smart investment.
While most parents plan to live as long as possible, planning for the unexpected is a must. You already have insurance on your car, home, and health—but do you have a life insurance policy that covers all your end-of-life expenses? Parents will also want to look into burial insurance to cover funeral and other costs if they pass unexpectedly. Burial insurance policies can also cover medical debt and even personal loans, helping your family out of a financially tight spot if you leave debt behind.
Before you buy a policy, it’s critical to determine what type of funeral and other arrangements you would like. Think about whether you want outstanding medical bills and other debt to be included in those arrangements, too. Then read the fine print before committing to buy.
Estate planning can be a game-changer.
Many parents worry over who will take care of their children or manage their assets in their absence. Especially for parents of children with special needs, designating a caregiver and estate executor can present challenges. One way to protect your child’s financial future, regardless of their health status, is to establish a special needs trust.
Generally, a trust establishes who receives your belongings and investments if you pass away. But parents can create a third-party special needs trust (also called a supplemental needs trust) on behalf of their children. This option allows your child to receive financial assistance without jeopardizing any government benefits they receive.
Retirement plans are a necessity.
Especially for parents of children who have special needs, adequate retirement is a necessity. Even if you could depend on your children for support in your later years, being financially independent reduces the burden on them. Invest in your retirement as much as possible, taking advantage of employer match plans as applicable.
Per the IRS, retirement plan options include payroll deduction IRAs, Simplified Employee Pensions (SEPs), SIMPLE IRA plans, 401(k) and SIMPLE 401(k) plans, 403(b) tax-sheltered annuity plans, and others. Compare the types and their benefits before investing in a specific fund—especially if your employer offers contribution matching.
Special savings might help your family.
For children or parents who have a qualifying disability, exclusive savings accounts allow the family to set aside tax-advantaged savings in an Achieving a Better Life Experience (ABLE) account. An ABLE account can pay for qualified disability expenses later, and contributions to the account offer unique tax advantages. The availability and terms of such programs vary by state, but only applicants whose conditions began before their 26th birthday are eligible, in most cases.
Tax breaks can make a difference.
All parents are entitled to specific tax breaks for dependent care, education and healthcare expenses, and many other credits and deductions. But three other tax breaks are supremely relevant for parents of children who have special needs. You may be able to deduct unreimbursed medical expenses, contribute untaxed amounts to a 529A (ABLE) account, and receive reimbursement on child and dependent care costs.
Be sure to build an emergency fund.
No matter how high your income or how comprehensive your insurance plan, setting aside savings is a must. Whether your family includes a child with health challenges or a significant special need or not, having savings is vital for covering any type of emergency that can arise. If you lose your job, fall ill, or get behind on debt payments, an emergency fund can help. Or, you may find that you can invest the balance and make a higher return than you would leaving it in the bank.
Planning for your financial future—and that of your family—can feel intimidating. But knowing the steps toward financial solvency and working toward them slowly but surely can help provide peace of mind. It also puts a backup plan in place if your family falls on hard times.
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Submitted by Guest Contributor: Sarah Bailey