5 Critical Financial Planning Essentials for Parents of Special Needs Children

Linda Migliazzo |

The cost of raising a child with special needs can quickly dwarf the average cost of raising a child. While analysts believe middle-income families spend about a quarter of a million per child, [i] raising a special needs child could be well above that. 

While the out-of-pocket costs can vary dramatically depending on your situation and your child's unique needs, you should try to plan for the increased costs and personal demands you are likely to face if your child has special needs. In particular, you may want to be aware of the following essentials:

1. 529 ABLE Plans

Reserved for people who have a severe disability under age 26, these plans allow you to contribute up to $16,000 annually, and many states have total contribution limits that exceed $300,000. [i] The contributions are not pre-tax. But as your investment grows, you don't have to pay tax on the growth, and distributions are also tax-free. 

Your child can use these funds for education, job training, healthcare, and other expenses. The government does not consider these funds when determining your child's eligibility for government services unless the account's balance of non-ABLE resources exceeds $100,000. In that case, they will no longer be eligible for SSI benefits because they will have exceeded the SSI resource limit. Then, if the beneficiary dies, states may be able to recoup certain expenses through Medicaid. If their account exceeds $100,000 due to ABLE resources, Medicaid continues uninterrupted. [ii]

2. Liquid Assets for Medical Emergencies

Ideally, it would help if you always have three to six months’ worth of expenses in cash or relatively liquid investments. Still, when you have a special needs child, you may want to expand your savings account to prepare for the cost of a medical emergency. 

3. Life Insurance

If something happens to you, life insurance helps your family to cover expenses in your absence. When deciding how much life insurance you need, you typically take into account your wages, the cost of your home, college tuition for children, and any other expenses you plan to cover with your income if you are alive and working. 

Note that you may not want to name your special needs child as a life insurance beneficiary. However, when you have a special needs child, you also need to consider the cost of their care. If they have too much money, they may lose eligibility for essential government help, but you should talk with a financial professional to identify the best approach for your situation.  



4. Disability Coverage

Similarly, you may also want to look into disability coverage. If you cannot work due to a disability, this type of policy helps to replace your income. Usually, a disability policy goes above and beyond any disability payments you may receive from the government. If you cannot work due to a disability, this type of policy helps to replace your income.

5. Long-Term Care Insurance

Unfortunately, you typically cannot get long-term care coverage for a child with special needs, even though they may need specialized care throughout their life. However, you may want to look into long-term care coverage for yourself and your spouse. As you get older, you may need specialized care, and juggling those costs on top of covering your child's care needs, may become financially debilitating. Insurance may help to cut your costs.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any insurance product, long term care product or individual security. To determine which product(s) or investment(s) may be appropriate for you, consult your financial professional prior to investing.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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