How 529 Plans are Opening Doors to the Disabled

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When you think of a 529 plan, you probably think of the 529 college-savings plan. Well, there’s a new 529 plan available now – the 529 ABLE (“Achieving a Better Life Experience”) account. The 529 ABLE account will provide eligible disabled people a savings vehicle that offers the same tax-free growth as a 529 college-savings plan provides.

In December 2014, Congress created the 529 ABLE account. However, not until December 2015, was the law passed to enable the creation/taxation provisions of a 529 ABLE account. Consumers eligible to open a 529 ABLE account will be free to select a plan sponsored by any state and will not be restricted to the plan in their home state.

529 ABLE accounts are somewhat similar to 529 plans. A disabled person, a family member or friend can make contributions to the 529 ABLE account. The money can grow tax-free as long as the funder are used for “qualified expenses”. What is a qualified expense? Education, housing, transportation, and employment training. If the money is used for an expense other than a “qualified expense”, any investment gains are subject to income tax and a 10% penalty.

What is great about the 529 ABLE accounts is that disabled people can save as much as $100,000 in the account and will not risk losing benefits such as Medicaid and Supplemental Security Income (SSI).

As soon as the first state program opens for business, the new change will allow people across the country to start a 529 ABLE account. While these state programs have not yet taken flight, there are several states expected to make the 529 ABLE accounts available in 2016 – Nebraska, Virginia, and Florida.

While only 35 states have passed legislation to sponsor ABLE programs, some states may wait to start their programs and assess how the initial 529 ABLE plans are operating. Others may team up with other states or join a multistate consortium to drive down the cost of investment costs and account fees.

While there are still some logistics to be figured out, experts are suggesting families open up the 529 ABLE accounts in 2016 in order to maximize their contributions to these accounts. Families will need to make sure their disabled relative is eligible for an ABLE account and will want to meet with a qualified attorney who is familiar with Special Needs Planning and Special Needs Trusts.