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ABLE Accounts in Wisconsin: Key Things to Know for WI Residents

ABLE Accounts in Wisconsin: Key Things to Know for WI Residents

There are many types of accounts for individuals to employ as part of their saving and investment plan – IRAs, HSAs, FSAs, 529 plans, and more. However, there is one account that we haven’t covered before and doesn’t get a lot of attention when considering the alphabet soup of account types – an ABLE account. And while ABLE accounts can be a bit more complex for Wisconsin residents, they offer significant tax benefits for individuals with disabilities and their families. In this piece, we’ll cover the basics of ABLE accounts, as well as what Wisconsin residents specifically should know when considering opening an ABLE account.

What is an ABLE account?

The ABLE acronym stands for Achieving a Better Life Experience. It became law on Dec. 19, 2014. An ABLE account is a tax-advantaged savings account that allows individuals with a disability and their families to save and invest money without losing certain government benefits (i.e. SSI, SSDI, Medicaid). The money in the account grows tax-deferred and income from the account is tax-free when used for qualified expenses.

What are considered qualified expenses for ABLE accounts?

A qualified disability expense is a broad definition that includes things like housing, food, transportation, education, assistive technology, personal support services, healthcare expenses, and financial and administrative services.

Who is eligible for an ABLE account?

Individuals who became blind or disabled before the age of 26 are eligible for an ABLE account. 

How much can I contribute to an ABLE account?

The ABLE account contribution amount is capped at $16,000 for 2022. That amount is per beneficiary, not per person (a difference from 529 college savings accounts). For example, each parent and grandparent could contribute $16k to a child’s 529 account. However, for an ABLE account, the TOTAL contribution from all sources (excluding wages earned by the beneficiary) is capped at $16k.

Are ABLE accounts available to Wisconsin residents?

Wisconsin does not have an ABLE program, but Wisconsin residents can establish an ABLE account in another state if that state’s program is open to out-of-state residents. Currently, 28 states offer ABLE accounts open to out-of-state residents. 

How do I decide which state I open my ABLE account in?

There are many differences and distinguishing features for each state’s ABLE account, including: 

  • Annual fees (ranging from $0-45)
  • Debit card options (not all programs offer a debit card and some charge a monthly fee)
  • Investment options (fund choices range from as few as 4 up to one state that offers 15, but a majority offer 6 different investment options from a variety of financial institutions including Vanguard, Fidelity, BlackRock, Schwab, and others)
  • Investment fees (underlying expense ratios for investment funds range from .34%-.94%)
  • Account maximums ($234,000-$550,000)
  • Account administration (the bank and/or investment company that holds the underlying accounts)

Best state for maximizing account balance

The “best” program is somewhat based on what is most important to the account holder and how the beneficiary will use the account. Virginia is arguably the best state for maximizing an ABLE account balance. 

  • Annual Fee: $39 (eStatements)
  • Debit Card: Yes, no monthly fee (PNC Bank)
  • Investment Options: 4
    1. Vanguard Aggressive Growth Fund
    2. Vanguard Moderate Growth Fund
    3. Vanguard Conservative Income Fund
    4. Fidelity Money Market
  • Total Expense Ratio: .36%-.39%
  • Account Maximum: $550,000

Best All-Around ABLE Account

When it comes to the plan itself, most National Able Alliance (NAA) Member Plans are the best available option. The breakdown of the basics of those plans is below. 

  • Annual Fee: $45 (eStatements)
  • Debit Card: Yes, no monthly fee (Fifth Third Bank)
  • Investment Options: 6 (Mutual funds within each option include a mix of Vanguard, BlackRock, and Schwab funds)
    1. Aggressive Growth Fund
    2. Moderately Aggressive Fund
    3. Growth Fund
    4. Moderate Fund
    5. Moderately Conservative Fund
    6. Conservative Fund
    7. Checking (Fifth Third Bank)
  • Total Expense Ratio: .34%-.37%
  • Account Maximum: $305,000-$511,758 (depending on state)
  • Includes: Alaska, Arkansas, Colorado, DC, Delaware, Illinois, Indiana, Iowa, Kansas, Michigan, Nevada, New Jersey, North Carolina, Pennsylvania, and Rhode Island (other states are members of the NAA, but have a monthly fee associated with their debit card option)

Can I still get a Wisconsin state tax deduction if I contribute to another state’s ABLE plan?

Yes! As of 2021, there is a subtraction on your Wisconsin income up to the annual gift exclusion limit ($15,000 in 2021, $16,000 in 2022) for the account owner. This subtraction is for money deposited directly into an ABLE account and does not include rollovers or transfers.

How We Can Help

Part of our role as fiduciary financial advisors is to help our clients navigate through investment options and select what is right for them. We have an experienced team of advisors that is here to help you. You can schedule a no-cost, no-obligation appointment with our team here

Disclosure

Specific account details are subject to change and we are relying on the information from outside sites, which may or may not have completely correct information. You should consult a financial professional and perform your own due diligence on these providers before you make any changes to your own investments. We are not affiliated with the National ABLE Alliance or any of the different state’s ABLE plans.

AUTHOR

Alicia Vande Ven, M.S.

Alicia Vande Ven, M.S.

candidate for cfp® certification

Alicia Vande Ven is a Candidate for CFP® Certification at Walkner Condon Financial Advisors, a fee-only, fiduciary financial advisor firm based in Madison, WI, that works with clients locally and around the country.

What to Know About an 83(b) Election for Restricted Stock

What to Know About an 83(b) Election for Restricted Stock

Employee stock grants can be an excellent benefit, but they can also be complicated, especially when they involve restrictions and vesting schedules. Stock grants also come with significant tax consequences that, depending on the situation, can leave you with large tax bills. However, you do have some control over when those tax bills are paid and, in the right circumstances, you can lower your total tax bill significantly if you elect to pay taxes upfront. That’s where the 83(b) election comes in.

When a company awards an employee restricted stock, the employee is taxed on the difference between what they paid for the stock and the fair market value of the stock. For example, if an employee is awarded stock worth $10 and the employee paid $8 for the stock, the employee is taxed on the difference of $2. Typically, the employee isn’t taxed on that $2 until they actually become vested in the stock. Until then, the stock is at substantial risk of forfeiture because if they leave the company for any reason, they won’t receive the stock.

Basics of an 83(b) election

With an 83(b) election, you are electing to pay taxes on the entire value of the stock on the date of grant instead of paying taxes as you become vested in the stock. You pay taxes based on the current value as opposed to whatever the value happens to be when you become vested. 

For example, you are awarded 10,000 shares of company stock that vest over 5 years. The current share price is $1. If you make the 83(b) election you will include $10,000 in your ordinary income the year you are granted the stock and you will be taxed at your marginal tax rate. This could be up to 40% which means $4,000 in taxes for those in the higher tax brackets. If you don’t make the 83(b) election, you will include in your ordinary income each year the portion that vests that year. The example below assumes 20% vesting each year and 40% tax withholding.

Stock Price Vested Value  Taxes Due 
Grant $1.00  $                    –    $                –   
Year 1 $1.50  $         3,000.00  $      1,200.00 
Year 2 $2.00  $         4,000.00  $      1,600.00 
Year 3 $2.50  $         5,000.00  $      2,000.00 
Year 4 $3.00  $         6,000.00  $      2,400.00 
Year 5 $3.50  $         7,000.00  $      2,800.00 

 

What are the benefits of making the 83(b) election?

In the example above, if you made the election, you would have paid $4,000 in taxes at the date of grant. If you didn’t make the election, you would end up paying $10,000 over 5 years. The more the stock price goes up, the more money you save on taxes by making the 83(b) election.

What are the risks of making the 83(b) election?

If you leave the company before you are fully vested in the stock, it’s possible you will have paid taxes on stock that you don’t ultimately receive. In the above example, if you left after 2 years you would have overpaid by $1,200; however, if you stayed at least through year 3 you would come out with tax savings.

If the stock price declines you would also end up overpaying on taxes. 

When would I want to make an 83(b) election?

    • You plan on staying at the company until your shares are fully vested; 
    • You have the cash to pay the taxes due within 30 days of your stock grant; 
    • You are confident that the value of the stock is going to go up;
    • Adding the vesting value to your income each year would; consistently make you ineligible for tax credits that you would otherwise be eligible for;
    • Your tax bracket will be the same or higher in future years.

When wouldn’t I want to make an 83(b) election?

    • You plan on leaving the company before the stock is fully vested;
    • You don’t have enough liquid assets or it would strain your finances to pay the taxes upfront;
    • You think the stock value will go down or stay the same; or
    • You will be in a lower tax bracket in the year(s) the shares vest.

What happens when I sell the stock?

You will pay the favorable capital gains tax rate (20% + 3.8% for high-income taxpayers) on any amount that exceeds your cost basis.

If you make the 83(b) election, the cost basis in our example would be $1 per share because that is the amount you included in your income. If you sold all your shares in year 5 after becoming fully vested you would have a capital gain of $25,000. ($35,000 sale price – $10,000 cost basis)

If you do not make the 83(b) election, the cost basis of your shares would vary based on the price of the stock as it vested. You would have a total capital gain of $10,000.

# of Shares Cost Basis Capital Gain
Year 1 2000 $         3,000.00  $      4,000.00 
Year 2 2000 $         4,000.00  $      3,000.00 
Year 3 2000 $         5,000.00  $      2,000.00 
Year 4 2000 $         6,000.00  $      1,000.00 
Year 5 2000 $         7,000.00  $                 –   

Your total taxes paid after the sale of all shares:

83(b) election No 83(b) election
Ordinary Income (40% tax rate) $         10,000  $           25,000 
Capital Gains (23.8% tax rate) $         25,000  $           10,000 
Total Taxes Paid $           9,950  $           12,380 

Bottom Line:

An 83(b) election can be an effective tool to potentially lower your overall tax liability on employee stock grants; however, there are many factors that go into determining if it’s the right choice for you. How a company sets up its stock plans and each employee’s situation can vastly impact these numbers and introduce other considerations that might make an 83(b) more or less appealing.  As financial professionals, it’s our job to help guide you through the options and determine the best course of action for you and your unique situation.

AUTHOR

Alicia Vande Ven, M.S.

Alicia Vande Ven, M.S.

Candidate for CFP® Certification

Alicia Vande Ven is a Candidate for CFP® Certification at Walkner Condon Financial Advisors, a fee-only, fiduciary financial advisor firm based in Madison, WI, that works with clients locally and around the country.

Inflation Nation: What’s Behind the Current Inflation?

Inflation Nation: What’s Behind the Current Inflation?

If we think back to the outset of 2021 – which feels more like 10 years ago than a year and a half – it was easy to overlook inflation, while we focused on rolling out COVID-19 vaccines and the start of a new presidency. But the problems we’re currently facing with the rise in inflation were percolating under the surface. 

Back in Dec. 2020, the Federal Reserve estimated that the Personal Consumption Expenditure Price Index (PCE), which excludes food and energy prices, would rise by 1.8%. By the time June 2021 rolled around, that was up to 3%. And by the end of 2021, it was at 4.1%. With all of the issues that our economy faced as we clawed back from the COVID-induced market downturn, the Fed was hesitant to raise rates too quickly, as it tried to navigate more pressing economic matters. 

The Consumer Price Index (CPI) provides further evidence of inflation. The most recent figures at the end of June showed CPI had increased to 9.1%, the highest 12-month increase in 40 years. 

So, how have we gotten to this point with inflation? The Fed continued to keep interest rates low as they injected the economy with new money in the early stages of COVID-19. There are several reasons that we are dealing with record inflation, but this factor should not be overlooked. 

Another phrase bandied about over the last year-plus is ‘supply chain issues.’ Any time there is a high demand for goods and services, but there is a low supply, you will see prices rise. Now past the halfway point of 2022, we are seeing how this has played out. Though gas prices have begun to dip back below $4 a gallon in many states, they are still close to $4.50 per gallon nationally as of Aug. 5. This is having a drastic impact on the companies that rely on fuel to get their products through the supply chain. It is also impacting consumers as they are spending far more on filling up their tanks than before, which in turn leads to less saving and less spending on items that are non-essential. When you couple that with the Federal Reserve raising interest rates to 2.50%, there is uncertainty about our economy. 

The crisis in Ukraine has also played a key factor in these rising energy costs, particularly in fuel, an impact that can be seen in the CPI number. Russia invaded Ukraine on Feb. 24, and the price in gasoline in the U.S. began its rapid ascent shortly thereafter, with its steepest climb in the first half of March.

Lastly, COVID-19 created many fissures in our economy. Employees have had increased leverage to leave their current jobs, while employers have struggled to find enough employees, including a restaurant in Texas that asked for volunteers to make sandwiches in return for one free sandwich. 

It would’ve been hard to anticipate at the start of 2021 that all of these factors would have coalesced to bring us to our current situation. But regardless of how we got here, we’re still in the thick of this inflationary environment. We’ll receive July’s inflation numbers on Aug. 10, which may give a better picture of the impact of the Fed’s decision to increase interest rates. 

And there is a chance that we could go into a recession, which could be painful in the short-term. But if history is any lesson, we will emerge from the current downward trend. And especially during times like this, it’s important to have a plan and stick to it through diversification and owning quality assets and asset-classes. 

AUTHOR

Jonathon Jordan, CFP®, CEPA

Jonathon Jordan, CFP®, CEPA

Financial Advisor, PARTNER

Jonathon Jordan is a Certified Financial Planner ™ and Certified Exit Planning Advisor at Walkner Condon Financial Advisors. He is a fee-only, fiduciary financial advisor who works with clients locally in Madison and around the country.

Webinar: State of the Market Halfway Through 2022

Webinar: State of the Market Halfway Through 2022

When it comes to finances and investing, 2022 has started in a rocky fashion. The lasting impacts of COVID-19 – including its continued effect on supply chain snags – and Russia’s invasion of Ukraine have had a hand in the increasing impact of inflation, as well as the rollercoaster ride of the stock markets. And regardless of whether you have an advisor or you manage your own investments, you’d be lucky to be down only a few percent year-to-date.

With an underwhelming last six months in the books, we felt it was an important time to have a transparent conversation about the state of the market. And while this is geared toward our clients, we cover lots of ground that every investor should know right now from stock performance year-to-date to treasuries and mortgages to the inverted yield curve.

Questions or Comments?

If you have any questions or would like to discuss anything from the State of the Market webinar more in-depth, please feel free to reach out to our team by tapping the button below. You can also schedule an appointment by clicking here.

What is a Recession and Why a Recession Matters

What is a Recession and Why a Recession Matters

We have experienced quite a start to the year. The equity markets have had a difficult start to 2022, with the S&P 500, the Dow Jones Industrial, and NASDAQ all seeing double-digit losses. Many of the bond indexes have seen historically bad beginnings to the year as well. The year-to-date losses in the equity and bond markets, coupled with rising inflation rates and a persistent war in Ukraine, have greatly increased the likelihood of a recession. As a result, we have seen the term recession take center stage in many new headlines and broadcasts. Let’s take a closer look at recessions and how one may impact the economy and markets for the remainder of 2022. 

Defining a Recession

The most widely accepted definition of a recession is two consecutive quarters of negative economic growth, as measured by GDP. However, more recently, the description has expanded to include other economic criteria, including depth, diffusion, and duration. The National Bureau of Economic Research has a definition that is more flexible because no two recessions are the same, therefore, a broader interpretation makes sense. One recession may be caused by a shake-up in the labor markets while another may be due to an unexpected shift in the economy such as the housing market crash in 2008-2009 or a non-economic factor such as a pandemic. Hallmarks of a recession typically include companies missing on earnings projections and negatively adjusting future forecasts, consumers curtailing discretionary spending, and a feeling of overall uncertainty that can become palpable. 

 

Why Does It Matter So Much?

The reason why recessions matter so much to economists is that they indicate the slowing of an economy and can lead to many negative consequences such as job losses, companies going out of business, and prolonged stock market volatility. Recessions create an unpredictable economic environment. Once a recession has started, it is very difficult to determine how long it will last or how much damage it will do. We typically see the adverse effects of a recession before economists are able to officially say we are in a recession. We may very well be experiencing some effects in our current economic situation. The economy did contract in the first quarter of 2022, with a GDP drop of 1.6% annualized. We likely won’t know the final GDP growth or contraction rate in the 2nd quarter until late September; however, many of the domestic and international stock indexes are already reacting as though we are in an economic slowdown. One thing is becoming abundantly clear – the driving force behind the current economic slowdown is the return of inflation. We haven’t seen inflation levels this high since the early 1980s. If inflation persists into 2023, it will likely have a negative effect on consumer spending as well as overall consumer sentiment.    

What To Do As An Investor?

The pressing question for investors navigating through a recession is how to protect their investment portfolio. The most prudent answer to the question is diversification and patience. Since WWII, the average recession lasted roughly 11 months. Conversely, the average bull market lasts roughly 2.7 years. A well-diversified portfolio that matches the investor’s risk profile will give the best chance for long-term gains, even taking the losses of a down market into consideration. Assuming a well-diversified portfolio is in place, the most critical variable is the behavior of the investor. This is because staying invested through down markets takes resolve and fortitude, it is not for the faint of heart. Seeing monthly statement after monthly statement filled with negative numbers can cause even experienced investors to make questionable decisions. Remember, recessions are part of an economy’s natural cycle, not a deviation from it.    

AUTHOR

Nate Condon

Nate Condon

Financial Advisor

Nate Condon is one of the co-founders and managing partners of Walkner Condon Financial Advisors. He is a fee-only, fiduciary financial advisor who works with clients locally in Madison and around the country.