Disabled individuals are commonly underemployed, so much so that an entire month out of the year is dedicated to educating employers and celebrating the contributions of disabled workers. October is named as the National Disability Employment Awareness Month in efforts to overcome and change the disability stereotypes, pre-conceived notions of capabilities and inaccessible workplaces. These barriers are what disabled workers have to deal with in the workforce. Now tack on the additional difficulties we as women face. As the storyline of the recent Barbie movie reminds us, there are entirely too many disparities women face in our culture. As America Ferrera says in her touching monologue, “it is literally impossible to be a woman”. We experience unequal pay, occupational segregation and a lack of flexible work schedules, just to name a few issues. Altogether these issues lead to women with disabilities having the highest unemployment rate, with the United Nations estimating 75% of disabled females being unemployed.1 I want to be clear here, that the definition of being unemployed is different than someone who is content with being jobless. The economic definition of being unemployed is “someone who is actively searching for employment but is unable to find work”.2
This reminds me of a blog post I made back in October 2020 when we were in the midst of the COVID 19 pandemic. Women were essentially expected to serve the family in an overwhelming number of vital roles- the homeschool teacher, the full-time worker, the compassionate mom, and the homemaker. Because of the excessive workload put on these individuals many of them left the workplace. Both these situations leave the unemployed individual vulnerable to financial shortcomings in the long-term.
Knowing these barriers are present, let’s cover a few concepts on how we can change this narrative and overcome the setbacks. We will start with the workplace.
The Bright Side of the Pandemic
Though there is little positive to have come out of the pandemic, one was the abundance of remote-work positions. This development relieved the barrier of inaccessible workplaces for many disabled individuals and often allows for more flexible work schedules. It also changed the way remote work was taxed to out-of-state employees. As remote work became commonplace many companies started offering fully remote positions that allow a worker to be located in a different state than their employer without having to pay state taxes to the employer’s state. Filing multiple state tax returns is time consuming and when working with a professional it can be expensive, but now it can be a non-issue. So if you were once working remote and hesitant to do so again due to any of these issues, maybe you should reconsider.
Be Proud of Your Advantages!
Harvard Business Review recently reported their research suggests that having employees with disabilities in its workforce can build a firm’s competitive advantage in four ways, one of which is that many disabilities present unique talents that make people better at particular jobs.6 For instance, a neurodivergent individual may be a savant with numbers, giving them an advantage over many of their peers in professions related to money, engineering, or science. They also noted that malls in Latin America have been employing many workers in wheelchairs to help spot pick-pocketing thieves as they are significantly better at spotting such crimes due to their pocket-height visibility, and when they need to rush to a scene or chase a perpetrator, they can move faster than people on foot. In fact, many have superior upper body strength, which further aides in restraining thieves.6 Aside from employee’s aptitudes, employers should be reminded of the advantages disabled workers bring to the table. We should all ask our friends, allies, and family to help spread the word possibly referencing such studies or reports or articles such as the “Seven Reasons Why Hiring People With Disabilities Is Good For Business” by Karen Herson for Forbes in December 2021. Together we can try to change the system from the inside-out.
Now let’s move on from addressing the workplace to tips for your personal finances. Understanding that systemic change takes time, let’s now cover a few ideas on how to work with what you have, even if you’re working with a small amount. Let’s begin with the issue of taxes.
Playing Within the Rules of Tax Law
It’s important to understand the impact of taxes on an investment’s return, because in the end the bottom line is affected by the net return. In other words, you need to be cognizant of your after-tax return. It sounds great when you say you’re earning 5% in a CD, but in reality, it may mean you’re receiving less of an investment return as you’re getting 5% minus taxes. That’s why you might want to consider investing your accounts tax-efficiently. This is especially important for those who are in higher income tax brackets, as the higher the tax rate is the less of the investment return you keep. For this reason you might consider investing in income producing investments that are either partially or fully tax-deferred. This could include interest from municipal bonds or dividends/interest from investments held in 529ABLEs or retirement accounts. There’s been many studies that show the positive effects of tax-deferral, mainly boiling down to the fact that the money is contributed before taxes and growing and compounding tax-deferred. This larger invested amount allows opportunity to earn more dividends in the long run. Compounded over time this can make a big difference, and is a relatively easy way to make your investment earnings work harder for you. Just know that at some point taxes will be due contributions and investment growth, its just that the taxes are deferred until withdrawal. Also, a quick word on Municipal bonds, or “munis”: they are debt securities issued by state or local governments to finance public projects. Interest income is typically free from federal income taxes, and if held by an investor in the state of issuance, may also be exempt from state and local taxes.
If you qualify, consider saving in a 529ABLE account
Speaking of tax-efficient investments, the 529ABLE account that allows you to save money for many things, including recreation, tax-favorably. Contributions up to $17,000 (2023) are contributed with already taxed dollars, they grow on a tax-deferred basis while invested in the account, and are withdrawn tax-free for qualified withdrawals. It’s much like a Roth IRA but has a different focus- instead of aiming to provide tax-favorable income for retirement its focus is to provide tax-favorable income for disabled investors. It also allows for a much larger annual contribution, and qualified withdrawals made before age 59 ½ aren’t penalized. Not only is this a great way to invest tax-favorably, but it’s also a great place to save for the extra expenses that enhance your life and make it more comfortable such as more frequent doctor visits, prescriptions, caring for a service animal, housing with accessible features, and transportation. All of these expenses are qualified withdrawals for a 529ABLE and are not taxable. Note that not all states have a 529ABLE and each state have slightly different rules. In order to qualify for a 529ABLE your disability must have occurred before age 26 and you must have a medically determinable physical or mental impairment that is expected to last for a continuous period of at least 12 months, or expected to result in death.
You might qualify for the Saver’s Credit!
To ease the pain of saving for retirement the IRS has a tax credit for folks within certain income limits who save for retirement. For married taxpayers whose Adjusted Gross Income is under $73,000 or single individual who earn less than $36,500, there is a tax credit for 50%, 20% or 10% of their contribution to either a retirement or 529ABLE account. The credit is capped at $1,000, or $2,000 if you are married and file jointly. 3 Tax credits are a dollar-for-dollar lowering of your tax liability, so instead of giving your money to the government you might consider paying yourself something in either an IRA, 529ABLE, or an employer retirement plan like a 401(k) or 403(b).3 Consult with a tax professional to see if you qualify for this credit.
IRA Contributions and Spousal IRAs
Another option for you would be to save tax-favorably is by using an IRA. IRAs are different than an employer’s retirement plan in that they allow for contributions to be made by a personal check rather than a paycheck, and the rules allow for contributions to be made based on either your earnings or your spouse’s income for the year. If you’re married your spouse can help contribute to your IRA if your income isn’t enough to contribute the maximum, this is called a Spousal IRA. Investment vehicle options for IRAs are diverse in that you can invest in the stock and bond market for the potential to earn higher gains than you may in a savings account, though savings accounts and CDs can also be used if preferred. In an IRA you can invest 100% of your income (or your spouse’s) up to $6,500 in 2023 with an additional $1,000 if you’re age 50 or over, whichever is lower, and you can save pre-taxed monies (Traditional IRA) or post-taxed monies (Roth IRA). Just know the maximum that can be contributed to IRAs in your name is $6,500 per year, regardless of whether or not you contributed it, your spouse contributed it, or a combination of the two.
Encouraging Change with Your Investments
In a small yet meaningful effort you might consider using your investments as your voice by investing in companies that support diversity and inclusiveness. This is called Socially Responsible Investing, or Environmental Social and Governance investing, and an advisor skilled in this area of investing can help you consider the available options. And as an investor you may have the ability to vote and make change in the industry by participating in company’s shareholder meetings. If you invest using mutual funds you can generally vote by proxy at those meetings which empowers your mutual fund manager to speak on your behalf. You might be one person but together with others you can put pressure on companies to encourage inclusivity, compassion and respect towards their disabled and female workers and ultimately change the landscape over time. And with a domino-effect change can occur by just one company seeing a competitor successfully doing business with these improvements, they just might make the change voluntarily on their own.
Invest in Dividend Paying Investments
Consider investing your assets in income-producing assets such as dividend paying investments, interest bearing accounts, or rent-producing assets. This includes investments like a bond portfolio or dividend paying common or preferred stock, all of which can pay you a regular dividend/interest check. At that point it’s up to you what you do with the dividend/interest payment- you could either reinvest it to eventually earn more dividends/interest, or you could have it payable to you for current income needs. Just know that dividends are not guaranteed and may fluctuate, pause, or end at any time.
Even SSDI Recipients Can Benefit!
Many of these concepts are applicable even if you’re collecting SSDI as there are no restrictions on asset levels. (To be clear, this is for SSDI, Social Security Disability Income, only, not SSI. SSI has very different rules). In fact, because only up to 50% or 85% of SSDI is taxable, you can have a little more investment income and still be in the lower income tax brackets. There’s also a possibility that you may not have to worry about capital gains taxes as the rate is 0% for single filers with taxable income < $44,625 or married couples filing jointly with income < $89,250 in 2023. 5 Even if you don’t qualify for 0% capital gains taxes you can still benefit from the lower, more tax-favorable capital gains tax rates than ordinary income tax rates.
Summary
As with any hardship, it takes creativity and thoughtful strategic planning to design a stratagem that can overcome setbacks. Make sure to consult with someone who understands the issues and is willing to spend the time thoughtfully drafting a tax-efficient, long-term plan that addresses your current and futures needs. One of our main concentrations at Equanimity Wealth Planning and Investing is Special Needs Financial Planning, where we are your ally and advocate and will work with you to determine what steps need to be taken to properly care for you and the people you love.
Sources:
1United States Agency for International Development. “Advancing Women and Girls with Disabilities”. www.usaid.gov. 26 September 2023.
2 Hayes, Adam. “What is Unemployment? Understanding Causes, Types, Measurement”. 9 August 2023. Investopedia.com.
3 IRS.“Retirement Savings Contributions Credit (Saver’s Credit)”. 29 August 2023. www.irs.gov.
4 Social Security Administration. “Working While Disabled: How We Can Help”. January 2023. www.ssa.gov
5 Dore, CFP®, Kate. “Here’s Who Qualifies for 0% Capital Gains Taxes in 2023”. 23 June 2023. www.cnbc.com.
6 Alemany, Luisa and Freek Vermeulen. “Disability as a Source of Competitive Advantage”. Harvard Business Review. July-August 2023 Issue. https://hbr.org
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned here may not be suitable for everyone. Each individual needs to review a financial strategy for his or her own particular situation before making any financial decisions. All investing involves risk including the potential loss of principal. CRN-6056022-102723