ABLE Accounts with Financial Planner John Gallia (3/3)

ABLE accounts with financial planner John Gallia

Keywords:

Special needs, financial planning, ABLE accounts, special needs trusts, government benefits, SSI, RDSP, financial literacy, tax benefits, early planning


Summary:

In this conversation, John Gallia shares his expertise on financial planning for families with special needs children. He discusses the importance of starting financial planning early, navigating government benefits like SSI, and the differences between ABLE accounts and special needs trusts. The conversation also covers the benefits of RDSPs in Canada, tax implications, and common mistakes families make in financial planning. John emphasizes the need for individualized planning and the importance of seeking professional advice to ensure a secure financial future for children with disabilities.

John is a seasoned financial advisor and the founder of Gallia wealth management group, LLC, an independent financial planning practice that he established in 2015. John gained a financial planner designation in 2010. And he obtained his chartered special needs consultant designation in 2024. This specialization allows him to provide dedicated guidance to families navigating special needs planning across the US. John is the father of two boys seven and almost five and his eldest is on the spectrum. 

Takeaways:

- John Gallia emphasizes the importance of starting financial planning early for children with special needs.
- Families should navigate government benefits like SSI to secure financial support.
- ABLE accounts allow for gradual contributions, making them accessible for families.
- Special needs trusts are suitable for larger inheritances, while ABLE accounts are for smaller, ongoing contributions.
- RDSPs in Canada provide significant government contributions and tax-deferred growth.
- It's crucial to monitor account balances to avoid exceeding limits that affect benefits.
- Cash distributions from accounts can complicate financial planning and should be avoided.
- Quality of life for families is paramount, and outsourcing financial planning can help.
- The earlier you start financial planning, the more you can benefit from compounding interest.
- Families can view their journey as a blessing, despite the challenges they face.


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Connect with John Gallia:

https://galliawealthmanagement.com/

https://www.linkedin.com/in/john-j-gallia-jr-cfp%C2%AE-chsnc%C2%AE-55263734/

Connect with me:  

info@foreverhomeconsulting.ca

Music Acknowledgement: Audio Coffee - Denys Kyshchuk

Editor: Scott Arbeau

Link for book: The S.H.I.N.E. Principle: The special needs mom's path to strength, hope and happiness by Valerie Arbeau

https://www.amazon.ca/dp/B0CW18ZXGX (Canada)

https://a.co/d/03hFdZI4 (United States)

Learn more about your host at:
https://coachingwithvalerieanne.com/

Transcript

I think one of the benefits that is often overlooked with ABLE accounts is that the child with disabilities or the disabled person can also get a debit card to use funds from these which also helps build financial literacy and inclusion. And it makes them feel empowered. And that's a very good thing.

Hello and welcome to Forever Home for our kids with disabilities. I'm Valerie, mom to two with disabilities, one visible, one invisible. I'm a life coach and an author. This space has been created to help you navigate the journey of creating a secure, sustainable forever home for your child. We'll chat with parents on this path, realtors, financial planners and other experts who can make the process easier.

Why am I so passionate about this? Because seeing my eldest thrive living independent of us was a gift I didn't always know I could give. I want you to have the opportunity to explore giving that gift to your child.

Well, I'm so glad you're here. I'm your host, Valerie, mom to two with disabilities, one visible, one invisible. I just want to take a moment to thank you listeners and you viewers. It means so much that you're on this journey with us, that you're supporting our show and that you're engaging. Thank you so, so much. I am thrilled to welcome back John Gallia, who is a seasoned financial advisor and the founder of Gallia Wealth Management Group, LLC, an independent financial planning practice that he established in 2015.

John gained a financial planner designation in 2010 and obtained his Chartered Special Needs Consultant designation in 2024. This specialization allows him to provide dedicated guidance to families navigating special needs planning across the US.

John is the father of two boys, seven and almost five, and his eldest is on the spectrum.

Now, in our first conversation, John shared his journey as a special needs dad, the importance of our relationships with our loved ones. And John also counselled us that it is never too early to come up with a financial plan for our children and shared about the importance of working with professionals who have education in financial planning for persons with disabilities. So, I want you to check out season two, episode five. And in our second conversation, John took us deeper into special needs trusts, the different types, common funding strategies, and when to set up a special needs trust. And for that one, check out season two, episode seven. So today we'll be discussing financial planning considerations. 

So John, welcome to the show!

Hey, thanks for having me again, Valerie.

You're so welcome. I have so appreciated your willingness to share your expertise on the show to help parents navigate what can seem to be an overwhelming piece to securing a healthy financial future for their child with disabilities.

Now, my oldest is now 23, and we knew that she would never contribute in the workforce due to her disabilities. And so when she was about 16, we were encouraged to start the application process for the benefits that she probably would be entitled to. So here in Canada, she qualified for AISH which stands for Assured Income for the Severely Handicapped. Now, John, I know in the US there's an equivalent. I believe it's SSI, Supplemental Security Income. So what are the key financial steps before applying for SSI?

 What you need in the US is you need the medical diagnosis that your child does have special needs. And typically the process for applying for SSI benefits is run through the state. And when you do that, it's typical that folks use the resources or obtain a case manager to help them navigate everything that you have to do. And a lot of the testing that you do to receive benefits is means testing. So what they have to do is they have to go through the parents or the guardian’s financial information before Medicaid or SSI benefits would even begin for the child. Now, with that being said, in the States, typically to get a case manager, it takes a while. The list is very long. People are trying to get benefits. There's very, I don't want to say there's very few, but the demand outseeds the workforce. So it's what I recommend is, I recommend that if parents believe that their children might have a diagnosis, wants to get started on help in the school system, with SSI through government benefits, start early because it could take a while to even get the help you need to qualify for these kind of benefits.

 In our last episode together, we discussed special needs trusts and the equivalent in Canada for that is the Henson Trust. And you hinted that today you'd be sharing about an ABLE account. So what are the differences between an ABLE account and a special needs trust? And when does a person need to use each of them?

Sure. Great question. Special needs trust allows somebody to inherit a large sum of money and be able to use that for future activities in life, future needs in life, care, education, housing, whatnot. But that's really designated for a larger lump sum of money. The ABLE accounts and real quick, I'm going to explain what the ABLE account stands for, Achieve Better Life Experience account. And how it started, it was grassroots started by parents that realized that the government was kind of limiting their special needs child and how much income or funds that they could have. Anything over two thousand dollars in an account in their name would basically start disqualifying them for Medicaid benefits and Social Security income. Well, they realized, you know what, that's not really fair. So what they tried to do and what they started to do is they started to promote these other accounts. How can the government help? And actually, a couple of years back in a different administration, the ABLE accounts were started. And what that allows parents to do is that allows parents and even the person with disabilities to contribute to these accounts over time and even start earlier. So you can put in little portions of money as opposed to waiting for a big inheritance and a special needs trust. So these ABLE accounts are great in the form that you can start them early and they can last throughout the lifetime of the special needs person. You just have to make sure that you fall within the qualifications of keeping those assets protected.

Okay, cool. I love it that parents started this. Yay for the parents!

Yes. We talk about advocating for your child and how daunting and time consuming it is. This is basically something that a group of parents started. I believe it was in California and they pushed real hard and it got approved and it's great. It is really a wonderful financial tool in that you don't need a huge large lump sum of money to contribute to this. This is something that can be done, you know, little bits at a time with little funds. And it's really important. We'll get into more details on why it's important too.

Okay. All right. So I just want to say for our Canadian listeners, in Canada we have RDSPs. And so an RDSP is a long-term savings plan designed by the Canadian government to help parents and others, guardians, save for the future of a person with a disability. It allows for tax deferred growth. Imagine! And in many cases, generous government contributions through grants and bonds, which is absolutely incredible and so, so helpful. Just to add to that, to open, or be a beneficiary of an RDSP, there are some criteria. So number one, you have to be a Canadian resident, but you have to be under 60. And then you also have to have a valid social insurance number and you have to be eligible for the disability tax credit.

The threshold is 200,000 as opposed to 100,000 in the US for the ABLE account. The RDSP is 200,000.

Yeah, which is incredible! All right. So I know for us, when we looked into doing an RDSP for Melody-Anne, our oldest, we were told that you wouldn't be able to access it until they were 65, which we thought, not so sure whether we want to get into it. And the reason for that being was Melody-Anne's prognosis when she was initially born, wasn't to be much past a year. And then given her diagnosis, she's total care. She has cerebral palsy and is G-tube fed, uses a communication device, is in a wheelchair. So her life expectancy, when Scott and I, her dad and I were kind of looking at it, we're thinking, we don't even know she's going to make it to 65. So we took some time to decide whether or not to actually get into doing this.

And that's great, Valerie, because remember, we talked about financial planning, how it's individualized for everybody, and you've just really kind of hit the nail on the head. You know, somebody with a prognosis of one year, I wouldn't have recommended as a financial advisor to start that kind of account. And that's where coming in and working with professionals that are well versed in government benefits, social security benefits, children with disability, is so important to get that kind of good advice. Because even though we find ourselves kind of in similar situations than others, not all of our things, not everything that encompasses our situation, is going to be the same for the next-door neighbor or the friend that has a similar situation.

Yeah, yeah, awesome. Thank you so much for that. So, John, going back to the ABLE account, who can contribute? And how much are they allowed to contribute?

Sure. So parents, guardians, legal representatives can contribute to an ABLE account. Now, we have an estate gift tax exclusion every year in the United States, and that amount is $19,000. So all parties involved can contribute $19,000 cumulative in one year. So let's keep that in mind. It's not like mom can contribute 19, dad can contribute 19, grandma can. It's combined for the person to $19,000 a year. In addition, the child with special needs, if they are working and employed and not covered under an employer retirement plan, and meet certain thresholds of income, they can also contribute up to $15 and a little bit of change into that ABLE account per year. What's great about the ABLE account that a lot of people don't know is these ABLE accounts can be invested for the long term. 

Oh, okay. 

Or they can be used as a conduit to supplement needs currently. Okay, so they're really specifically good for young adults with disabilities. Now you can contribute when they're kids. And obviously, you can let that money grow over time. And that's phenomenal. We have an account value that can go up to $100,000, which is very beneficial. But it doesn't necessarily mean that hey, if I throw some money in this kind of account, this month, do I have to wait a while before I can use it? No, that was those funds can be used that following month and left in a money market to fund those needs, the housing needs, just lifestyle needs, care needs, you name it.

Cool. All right. So contributions for the RDSP, just to compare, similar, the beneficiaries, so the person who the ABLE account or the RDSP account is for, but they have to have capacity. So they have to have proven capacity that they can contribute to it. And then as you said, for the ABLE account, same in this situation, family member, or guardian. And the fact is, it's not tax deductible. But the growth, so whatever interest you get, and the government contributions, they remain tax sheltered. So that's something to think about. So it's when you draw it out, the withdrawal piece, that's when the tax implications come to being. But the pieces that the family put in, that the beneficiary puts in, that the guardian puts in, those remain non-taxable, which is great.

And that's absolutely correct. So tax deferred for the RDSP contributions are not tax deductible. The ABLE account contributions based on which state and every state's a little different, but there's a couple of states where contributions can be deducted against state income tax, not federal state income tax. The growth of funds, if you choose to invest in something that might grow the principle over time, that is not taxable. And then distributions, making sure that their qualified distributions from an ABLE account are not taxed in addition to that. Now the RDSP account contributions, obviously not tax deductible. Distributions can be taxed, tax deferred growth. The other thing that is important to know about the RDSP is that distributions do not affect government benefits. Okay, which is really important where government benefits could be affected later on down the line. So if an account, and there is money left over in an ABLE account after someone passes, those funds could be subject to Medicaid payback. Okay, that's important to know if funds are left over. Now, I will say if funds grow beyond the exceeded $100,000 that the account allows, it's not going to affect Medicaid benefits for that person. It will affect Social Security income benefits until that account drops below $100,000.

Okay, all right, lots to think about. This is why we're having this podcast today.

 It's great. But I would venture to say for a lot of people to, and I know this kind of goes into one of the questions you were gonna ask later, what should I do? Should I do a special needs trust or an ABLE account? And it's a simple answer. If they have a large inheritance, that should go to a special needs trust. If they have a settlement from an accident, that should go to a first party special needs trust. If there's contributions coming in a little bit at a time, that should go to an ABLE account.

All right, hope you got that audience. Big money goes to the special needs trust. Little money goes to the ABLE account.

Exactly. 

Right. Okay, so we've talked about who can contribute to this ABLE account, or in Canada, an RDSP. Who establishes that? Who can establish this ABLE account?

The person with special needs, if they are able to do so, can do that. A legal guardian, court appointed guardian, a parent, obviously, can all establish the ABLE account for the individual.

Okay, great. And that's the same for an RDSP as well. So the parent, guardian, beneficiary themselves, as long as they have capacity. 

We all know about taxes, and we're all looking for ways we can save with taxes. So what are some of the tax benefits of putting funds in an ABLE account?

ABLE accounts are state specific? So most states have their own type of ABLE account. They work very, very similarly to 529 accounts, which is the college savings plan in the United States. Now, depending on where you live in the United States, your state may offer that. You can actually choose to use other states as well, ABLE accounts, tax benefits. As far as ABLE accounts, contributions, depending on the state you live in might be state income tax deductible. Okay, now we have states in the US that there is no state income tax, so it doesn't apply, right? But some states, again, state income tax deductible for statewide to tax deferred growth, right? No dividends, interest income you're going to pay, no 1099s you're going to get on a yearly basis. So that's a benefit. In addition, distributions coming out of that account are not taxed. One of the stipulations, and I know you talked about contributions and what qualifies people to make contributions in the United States, and this is important. The age that the person has to have qualified for disability is before the age of 26, today. 

Okay. 

Next year, that changes to 46. 

Wow!

So yeah, some legislation went through the system, and it's been a couple years coming, but they realized folks that are older, you know, they need to have this benefit. This is a relatively new kind of plan, and they're making improvements on it periodically. And that was one big improvement is now folks that have become disabled before the age of 26, but before 46 can now contribute to one of these plans.

Interesting that you bring that up because I have worked with colleagues, and I'm finding, as I have people in my family that have ADHD as a disability or are on the spectrum, I'm noticing and I'm hearing and seeing that there are more people getting their diagnosis later in life. So I love the fact that people are now being recognized as, yeah, I need benefits. I'm also thinking of one of my husband's colleagues whose son was out in the workforce trying to make it work, but just not able to. Continually having to leave jobs for one reason or the other, was not able to hold a job. And it wasn't until he was probably in his 30s somewhere that his parents finally decided, okay, there's something going on, we just need to make sure that this man has some help and were able to get what we call AISH here in Canada. So I just love the fact that there's going to be now the ability for people with a later diagnosis in life to be able to get the help that they need.

I absolutely agree. And I've had the unfortunate circumstance to run into people in my financial professional career that I kind of deemed would have been one of those older folks that could have used a lot of help back in a time where help really wasn't prevalent. There wasn't a lot of things being done for these folks.

And what we want to do is as parents, we want to protect our kids that we don't know what they're going to be like in the future, but they have the means, they have the resources to live a fulfilling life, to be inclusive and to feel protected against certain situations or predators. We want that for our kids. And I just think it's great that it's better late than never. We're kind of acknowledging that these kind of programs are out there and people can get the resources. And I highly recommend parents look into these resources for their kids, no matter what their age, because chances are the kids are going to outlive us.

Right. Absolutely.

You mentioned earlier about ABLE accounts and $100,000 was the number that you came up with that they can have in the account. And we mentioned for the RDSP that it was $200,000. So having that much money in the account, which would be lovely, if you exceed that, is there any fallback?

There is, and I'm not too certain on the RDSP. I'm sure there's certain kind of benefits that might be diminished. Obviously with the ABLE account, again, Medicaid will not be affected. So the child will still receive their Medicaid benefits if it exceeds $100,000. SSI income, Social Security income will be reduced if that account goes beyond $100,000. So you want to make sure that whoever is managing this account, if it's the person or a guardian or a legal representative, that they are monitoring this account because this is also subject to Medicaid, Social Security audits, right? Tax audits, they got to make sure that the funds that you're using are for qualified distributions. So, you want to keep receipts either through Excel or just receipts in general that proves what you're using these funds for.

Okay. Awesome. Thank you for that. And thank you for clarifying those little fine details that you don't necessarily think about. You know, you're just wanting to kind of build a nest egg for them. And yeah, so there are things to be aware of, going over a threshold and the effects that that can have. Are there benefits of establishing an ABLE account? And where does that kind of fall in the pecking order of importance when you're doing special needs financial planning? 

I think one of the benefits that is often overlooked with ABLE accounts is that the child with disabilities or the disabled person can also get a debit card to use funds from these accounts, which also helps build financial literacy and inclusion. And it makes them feel empowered. And that's a very good thing. Assuming that the child is capable or you deem capable of doing it, but it's a preloaded card as well. So you can set limits to it. That is a definite plus to the ABLE account in that you don't get that with special needs trust, right? There's no debit coming in and out of there. So it can work similar to like a bank account, which is also kind of important when funds are starting to be used to leave some funds not invested, right? Because as a financial advisor, I kind of earmarked funds in three different categories. Zero to two years, right? We're going to keep in money market. We're going to keep pretty liquid. Two to four years, a little bit of growth, pretty safe. We'll have some fixed income, money markets, whatnot. And then we have that four to 100 years, which we may try to grow our funds. So when we're opening accounts and we're selecting investments for these types of accounts, we also have to think, what is this account going to be used for? Is it going to be used for long-term growth or is it going to be a conduit to fund needs right now or a mixture of both?

All right. More things to think about. Okay. So I'm just going to just quickly run through a couple of the benefits or key benefits for having an RDSP. It was briefly mentioned earlier, but there are bonds and grants that are associated with the RDSP that the government actually kick in. The Canada Disability Savings Grant is one. And for every dollar that you contribute up to certain limits, of course, the government may match. Note the word may, may match up to 300% depending on family income. So grants will max out at $70,000 over time. And then there's also the Canada Disability Savings Bond for low-income families, and they may receive up to $1,000 a year without making any personal contributions. And bonds will max out at $20,000. And then, of course, we mentioned before the tax-sheltered growth. So the investments grow tax-free until the money is withdrawn. So those are some of the key benefits of having a RDSP.

So John, from a professional standpoint, what are the common mistakes that you've seen families make in special needs financial planning?

I think the most common mistake, and I know I brushed upon this during the last podcast, is paralysis by analysis. There's so much to do with special needs planning. There's so much to do with education planning, with maintaining a non-chaotic household, that it just becomes overwhelming and you start picking and choosing what you need to do, and you procrastinate, push things down the road. Sometimes that's because of uncertainty. You don't know the help somebody is going to need down the road. But my big recommendation when it comes to that is chew off something every month, get it accomplished, move to something else. But keep moving forward, keep having that checklist, knock things out. Because again, we want the best for our kids, and they deserve that. I mean, we brought them into this life. Let's really help them. Let's make sure that they thrive and live the best life they possibly can. Now, as far as ABLE accounts, I will say that there is a common mistake that people will make when it comes to distributions. One thing that you really don't want to do is you don't want to make distributions in cash to anybody, right? So, and that goes for special needs trust. That goes for ABLE accounts. Cash is never good because it's not a receipt. You can't say, "All right, this cash was used for something else," or you can't buy a gift card, so to speak, and have that used. Actually, use the funds for specific things. The other thing that you want to be careful, if you're using funds to pay for housing, okay, and let's say that housing is due on the first of the month, okay?

You want to make sure that you're taking those funds out and you're not leaving funds left over to account for in that account. So let's say it's due the first of the month, but you take those funds out on the 25th of the month and it's sitting in cash. You want to make sure that whatever account is paying that housing fund doesn't have over $2,000 in it. Okay. So you got to time some of these distributions, larger distributions from some of these accounts, just to make sure that you're not going to interfere with the means testing for the person with disabilities.

Ooh, every time you say something, John, there's something else to think about. Well, I just want to say, audience, this is why it's so important to have someone with financial planning experience to deal with families with special needs, because there are so many little nuances that one wouldn't even think about. Like I wouldn't have thought about making sure that this account has the money in at a certain time and make sure that it goes out at the right time so that we don't click off the radar for being audited.

I always say too, because of all these nuances, Valerie, it's a lot for anybody to keep up with, you know, to keep up with the laws, to keep up with these rules. And I think it's very important for people to realize that, you know, quality of life is really important. Time is important. Look at the things that are important to you. Look at the things that are, you know, that you need to do to help your children and try to outsource some of these things. You know, you can't do it all yourself. If you're not outsourcing finances with a financial advisor or special needs with somebody that's well versed in special needs, you're spending a lot of time trying to figure all this stuff out. There's a good chance you're going to miss it or there's a good chance that you're not going to be spending the time you want. So, you know, make sure that your family is efficiently working, that you're efficiently working and don't be afraid to ask for help to outsource things that, you know, are causing you to not live the best quality of life with the limited time that we have.

Yeah, love that. Great advice. Great advice. So, John, I'm sure you're going to tell us that financial planning should start early. We've said it several times over the last three times we've chatted. Are there any other considerations for when to start the planning process?

I would venture to say if we're specifically talking about the ABLE account, it is a wonderful account for young adults to learn about money, given the debit card situation. So if you're not going to start it early and let those funds grow tax deferred, it is a really good account to establish, like let's say when your child is 18 and starting to qualify for SSI income. You know, the SSI income can go into an ABLE account, can be invested, you know, that debit card can be used to pay. So it's really a nice tool for somebody that is a young adult and an older adult, even. It's a wonderful account, just given that it's a hundred-thousand-dollar limit as well. Right. Especially when your only other assets can equal two thousand dollars, which isn't much. I'll hit the nail on the head. The best tool that we have in financial advising or financial planning for a client is time. Nothing makes up for starting early. Right. The earlier we start, the more things can grow over time. The eighth wonder of the world is compounding interest. Right. Einstein said it. Start that compounding interest as soon as possible and let stuff grow. And I'll even say with the markets fluctuating over time, you got to remember things pay dividends. And even when accounts are down or values are down, those dividends are being reinvested in something that is on sale. I shouldn't say on sale, but things that are cheaper this month than they were last month. So, when they grow again, it's just more compounding interest and gains over time. So take advantage if you have the means of time and use that. That'll be one of your biggest benefits in financial planning.

Love that. Thank you so much for that, John. Thank you so much. So, John, where can our audience go to find out a little more about you?

I have a website. It's galliawealthmanagement.com. I also can be followed on LinkedIn. And I venture to say if anyone has any questions or wants to reach out to me, please feel free to reach out to me through my website. I have clients throughout the United States. So geographic areas really don't make that much of a difference, although I can't cross into Canada. But yeah, please reach out if you have any questions or if you think I can help out in a particular way.

Okay, thank you so much, John. John, before we conclude, what was an encouragement do you have for our families today?

I'll continue say this, and this is coming off of Father’s Day that we had. And look at the gifts around us. Our children love us no matter what kind of capacity they're in mentally, physically. They love us sometimes even more given a situation. We are blessed. We are growing as parents, especially parents with special needs children. Look at the blessing. Look at how much more we're getting out of life. I know it's stressful, but we are better people for it. And I'd like to say, you know, God doesn't give us more than what we can handle. So, you know, take a deep breath and keep doing what you're doing and really keep that family together. Work for a better tomorrow for everybody.

Yes, thank you so much, John. Thank you so much for being with us today.

Oh, you're welcome, Valerie. Thanks for having me. It's been a pleasure these last three episodes.

Yes, and we're just so grateful to have been able to do a mini-series with you. So thank you for your time and thank you for sharing your knowledge. All right, so audience, if you're watching on YouTube, please like and subscribe. That way the show gets pushed out to others that need this information. Keep building your child's future. Live with intention. Embrace the journey.

Thanks for joining me today on Forever Home for our kids with disabilities. I hope today's episode gave you something new to think about, and it increased your confidence on your journey. If you found this episode helpful, do tell others about it. Use the text feature to let me know your questions. Tell me what you want to know. Until next time, take care and keep building your child's future.