Benefits of a 529A Plan for Children With Special Needs

A new 529 plan helps people with disabilities save money and keep vital government benefits

A new type of 529 plan will help people with disabilities save money while keeping vital government benefits.

President Barack Obama signed the ABLE Act into law in December 2014, and now national advocacy groups are reviewing terms that the Internal Revenue Service has issued about how the 529 ABLE plans will work.

The plans will allow people diagnosed with a disability before age 26 to save up to $100,000 before their government benefits are affected. Previously, people with disabilities could not have more than $2,000 in assets without losing benefits such as Medicaid and Supplemental Security Income (SSI), which can pay for vital services such as housing and transportation.

The money in 529 ABLE plans, which are similar to 529 college savings plans, can be used for approved spending related to an individual’s disability, such as assistive technology, therapy and tutoring. The accounts’ annual growth is not taxed.

The National Down Syndrome Society estimates that the plans will help almost 6 million families and individuals.

529 ABLE’s Best Use

While Ryan Platt, a chartered special needs consultant and owner of A Special Needs Plan in Charlotte, cautions that 529 ABLE plans are not a “silver bullet,” but the plans can be of great benefit for people with disabilities and their families. They immediately will benefit adults with disabilities who are able to work.

Under the $2,000 savings limit, problems arise when people with disabilities have jobs and can save money. Platt knows of families who have panicked when savings accounts neared the limit, and then bought an iPad or something they didn’t necessarily need to keep the account low.

Kathryn Lariviere, executive director of the Down Syndrome Association of Greater Charlotte, sees the benefits for her 10-year-old son with Down Syndrome.

“I can look at Cameron and think that he is not going to be limited when he gets older as to whether he can save money and if he can work full time,” she says. “I feel like he’s going to have all sorts of possibilities in his life that up until now we haven’t seen.”

She expects that adults with disabilities who have been told they couldn’t work because they’d lose their government benefits now may be motivated to enter the workforce. In preparation, the Down Syndrome Association of Greater Charlotte is partnering with Child and Family Development to offer a course to teach job-related social skills to people with disabilities.

A 529 ABLE account also can help parents of younger children with disabilities with current expenses that aren’t covered by insurance, ranging from orthotic inserts to tutoring. For long-term savings, a Special Needs Trust or Pooled Income Trust can be a better option.

Plans Available Soon

While the 529 ABLE Act is a federal bill, each state will create a version of the plan. Fourteen states have enacted 529 ABLE legislation, and North Carolina’s General Assembly is working on a bill. Lariviere says that the bill is “moving along very well” and has received Governor Pat McCrory’s support.

The IRS and U.S. Treasury Department should have the ABLE Act’s federal regulations finalized in October, Platt says. Until then, no states can offer 529A accounts.

“We’re hoping sometime by the beginning of 2016 that an actual account will be available,” Platt says.

The legislation has largely received bipartisan support on federal and state levels, which shows that leaders may not see special needs as a political issue.

“That’s a very promising (sign) for other legislation that’s important to these families,” Platt says.

Marty Minchin is a freelance writer based in Charlotte.

FACTS ABOUT 529 ABLE ACCOUNTS

• Contributions made to 529 ABLE accounts are not tax deductible, but the account’s annual growth is not taxed. Taxes also are not paid on money withdrawn for qualified disability expenses.
• Qualified expenses include housing, transportation, job training and support, education costs, personal support services, health prevention and wellness, financial management, legal fees and funeral and burial costs.
• Each individual can have only one 529 ABLE account.
• Each state administers and operates its own 529 ABLE program.
• Annual funding limits for 529 ABLE accounts are based on the annual gift tax exclusion amount, which is $14,000 per year in 2015.
• Once the account exceeds $100,000, individuals will lose SSI, a monthly income that provides necessary support such as housing.
• If an individual with a 529 ABLE account dies, the remaining money in the account can be susceptible to Medicaid payback.
• Families interested in learning more about 529 ABLE accounts and other financial tools, such as special needs trusts, should consider consulting a financial planner who specializes in special needs.