CMP Financial Planning

Savings Account Strategies for Individuals with Disabilities


The creation of STABLE accounts in Ohio has given people with disabilities and their families a new tool to save for future expenses. In addition to STABLE accounts there are multiple savings tools that can be potentially employed including the use of Roth IRAs, 401Ks, Trusts, and pensions. Which accounts does it makes sense to use and when should they be used?

The key consideration for the individual is whether their Medicaid or Social Security benefits will be affected by a particular savings vehicle. In other words, will these programs count these assets as a resource in determining eligibility? Assets held in an individual’s Roth IRA or 401K will count as a resource under Ohio law (see OAC 5160: 1-3-03.10) so that in most instances if these accounts are held in the individual’s name it does not make good financial sense to participate in these savings vehicles.

The advantage of using STABLE accounts or special needs trusts as a saving vehicle is that the assets held in these accounts will not affect Medicaid or SSI eligibility as long as the withdrawals are clearly for the benefit of the individual with a disability. However, before deciding whether to use a Special Needs Trust, a STABLE Account, or some combination, you will want to consider the costs and accessibility of these vehicles. Take a look at my “Disability Insights” article for a full discussion on ABLE accounts versus Special Needs Trusts.

Of course, many individuals with disabilities have at least some work earnings. The “problem” is what to do with income above beyond everyday expenses. Prior to the establishment of the STABLE program, individuals had to find creative ways to spend these savings on TVs, trips etc., in order to avoid the Medicaid and SSI $2,000 asset limit. With the STABLE account, the individual is now able to put their surplus work earnings (as long as their income does not exceed Medicaid eligibility limits) are not into a STABLE account and avoid eligibility considerations.

In some instances a family member might want to consider using a ROTH IRA in their own name as a savings vehicle for their loved one. Like a STABLE account, contributions to the account are made after taxes and earnings in the account grow tax free. For both Medicaid and SSI purposes, the retirement assets of the parent are not counted as “deemed” resources that could be used for the individual. An advantage of a ROTH IRA is that the account holder does not have restrictions on how the money is spent and faces no tax penalties as long as the account is established for five years and the account owner is over 59 ½.

Another key savings strategy relates around housing. Many adult individuals with disabilities live at home with their parents. Parents can choose to charge the individual a fee to pay for room and board expenses and subsequently deposit that money into a STABLE account without affecting SSI eligibility. The equity in the home itself can be used as a saving vehicle. In most areas, the value of the home is likely to grow over time.  The title of the home can be transferred to a special needs trust upon the decease of the parents through their will. Any growth in the equity of the home will be thus transferred to the individual tax free in most instances. [1] The house could be sold for cash or kept for the loved one depending on the extent the individual is able to live independently.

All the savings strategies described involve careful estate and financial planning not only for individual with a disability but for the family member as well.   Which strategy makes the most sense for you will depend on your unique needs, goals and financial resources.

[1] If the estate is over $5.45 million for single household or $10.9 million for married households, there would be an some estate tax upon transfer of the house to the individual.

By Barry Jamieson