Should a Disabled Working Adult (no SSI) open a Roth IRA ?
Our son has high functioning autism and we (his parents) are his legal guardians/conservators. He works 2 part time jobs and participates in a company 401(k) plan. A supplemental needs trust has been established, to be funded by a 2nd to die policy. He has a checking and savings account, as well as some savings bonds. We are looking into the establishment of an ABLE account, which he could control, but it is restrictive in its distributions. He has a secured credit card, which he pays off in full monthly. Would it be advisable to set up a Roth IRA for him? His current 401(k) plan is not wonderful, but he contributes enough to get the employer match. It is an expensive, fee laden plan, however, and we thought a Roth might provide better (and cheaper) investment options.
We can set up an IRA for him as conservators (at least we think we can). But should we? He receives no services currently. However, the state vocational rehabilitation department seems to visit him once a year to get him to sign paperwork indicating he has a “work IEP” but no one does anything for him at all. They didn’t ask us (he is over 18) whether he needed help, they just sort of showed up.
He is not on Medicaid at present. He is ineligible for SSI. Any thoughts on whether a Roth is a good idea? Thanks to anyone with any insight. This is uncharted territory for us.
Permalink Submitted by Alan - IRA critic on Wed, 2018-05-16 18:59
What is his marginal tax rate? Does he qualify for the savers credit or could he if he made deductible TIRA contributions instead of Roth? Or are you thinking of his Roth as also serving the purpose of a second level emergency fund from which he could withdraw his contributions without tax or penalty?
Permalink Submitted by Elizabeth Conant on Sat, 2018-05-26 14:45
Thank you for taking the time to respond. Our son’s marginal rate is very low; he makes enough monthly from his two jobs to be “over the line” for SSI. He does not qualify for the savers credit because — although we file a separate return for him — we claim him as a dependent since we provide more than 50% of his living expenses.Was thinking of the Roth because it could serve as a secondary emergeny fund if needed and also, since his tax rate is so low, after-tax contributions to a Roth or an ABLE account are not an issue.Have seen strategies that recommend placing small amounts of capital into ABLE accounts with larger amounts going into the Supplemental Needs trust, as a way of providing independence to him while managing the Medicaid access. We have no problem with reimbursing Medicaid when he actually receives any services or benefits, but we just don’t want to blindly set things up without thinking long term about consequences.It sounds like maybe a Roth (with better and cheaper investments) and an ABLE might be parts of this entire puzzle. Again, thanks for your insights and input on this. It is much appreciated.
Permalink Submitted by Ben Meyer on Thu, 2018-05-17 13:54
One considerarion is whether you are looking to have assets considered as non-countable for Medicaid. It appears that a 401(k) plan and an IRA are countable unless they are in payout, depending on your state law. ABLE accounts are non-countable but require after-tax contributions. Social service agencies in your state are probably good sources of information.
Permalink Submitted by Elizabeth Conant on Sat, 2018-05-26 14:55
Thank you for your suggestion about the social service agencies. To be honest, the reason we posted here was because we knew this site is viewed by many highly experienced professionals in the field of IRAs. Most social service agencies that we have been in contact with are well meaning, but uniinformed (at best) about issues surrounding IRAs for disabled adults. It seems that many of the people they work with daily do not have these concerns and most are only vaguely aware (if at all) of ABLE accounts, much less Roth IRAs. Still, as education efforts proceed surrounding the many, many disabled adults who can and do work and produce income, we will continue to look for additional resources in this area. Right now, things are a bit sparse. Thanks for responding.
Permalink Submitted by William Tuttle on Thu, 2018-05-17 21:34
An ABLE account may have more distribution restrictions than a Roth IRA, but they are far less restrictive than a SNT. Almost all living expenses are ABLE qualified disability expenses.
Permalink Submitted by Elizabeth Conant on Sat, 2018-05-26 15:05
Thank you for your thoughts. We have been reading extensively about ABLE accounts and trying to learn more about what is meant by “living expenses.” Our son has a pet and covers her vetertinary expenses, which can be considerable — probably not a “living expense.” He loves model trains and trips to the train store for switches and track — probably not a “living expense.” He plays golf for Special Olympics in our area; there are no greens fees, but he does incur occasional expenses for clubs, fittings, shoes, gloves, etc. “Living expenses?”Like most autistic adults, he enjoys computers and video games during his off hours. All of these are routine expenses that he covers out of his checking account or with his secured card. Roth for retirement is an easy thing to understand; ABLE accounts, not so much. Continue to look at the national ABLE website for clarification, but if you know whether his hobbies and activities could be paid through an ABLE, that would shine some light for us. Again, thanks for your time and your ideas.