There are two factors currently raising the demand for special needs planning. The first factor is the increasing longevity of the special needs population, and the second being the challenge of families to save enough to fund the expenses of people with special needs over the long term. Few financial professionals have a comprehensive understanding of the unique requirements of special needs planning. While it is common to fund special needs plans with a permanent life insurance policy, not everyone can take advantage of such a policy. For those that do not have the option to enroll in a permanent life insurance policy, or are seeking other sources of special needs funding they can look to their retirements plans.
The benefit of using retirement plans such traditional or Roth IRAs to fund special needs planning is that, beneficiaries can enjoy a lower tax burden on distributions. Due to the tax-free nature of a Roth IRA, they also serve as an attractive source of funding for special needs trusts. When coordinated properly, the distributions from a Roth IRA can accumulate and be disbursed tax-free from a special needs trust. There are risks to combining IRAs with special needs trusts, one being the need to take the proper yearly distributions. If an IRA is not properly managed, there could be penalties placed on the distributions.
The best way to navigate special needs planning is to work with a financial professional with specific knowledge in the field. An experienced professional can evaluate the unique situation of a family and develop a long term plan that may include a combination of special needs trusts, life insurance policies, and IRA distributions. Knowledgeable planners can also allocate multiple sources of funding to reduce the overall tax burden felt by beneficiaries as the funds are disbursed. For anyone interested in putting together a financial plan that maximizes the efficiency of funds available to beneficiaries with special needs, Hope Trust offers expert service in the field.