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529 ABLE Accounts
The Achieving a Better Life Experience (ABLE) Act
The ABLE Act, which was signed into law in December 2014, allows Americans who are living with disabilities to save money for college and other expenses in a tax-deferred account as a supplement to private insurance and public benefits.
529 ABLE (529A) accounts
Similar to a 529 college savings plan, 529 ABLE accounts are savings accounts administered by the states. Money can be withdrawn tax-free when the funds are used to pay for qualified disability expenses. The contribution for 2016 is $14,000 (the amount of the annual gift tax exclusion) and many states have total contribution limits that exceed $300,000.
However, if a person's 529 ABLE account balance exceeds $100,000 they will no longer be eligible for SSI benefits. Also, if the beneficiary dies, states will be able to recoup some of expenses through Medicaid.
The signing of the PATH Act in 2015 removed residency requirements from 529 ABLE accounts, giving individuals the option of using any state's plan. Yet some states may offer tax benefits for those who use their home state's plan.
Why 529 ABLE accounts are so important
Prior to the ABLE Act, if a person with a disability earned more than $700 per month or had savings or other assets in excess of $2,000 they risked having to forfeit eligibility for government programs like Medicaid. The only way families could get around this was to set up a special needs trust, which is often very costly to do. As a result, there has been little incentive to save, and many people with disabilities end up living below the poverty level.
Qualified disability expenses
Qualified disability expenses include education, job training and support, healthcare and financial management.
To qualify for a 529 ABLE account, individuals must have been diagnosed with a significant disability before they turned 26 years old, with a condition expected to last at least 12 consecutive months. The individual must also be receiving benefits under SSI and/or SSDI, or be able to obtain a disability certification from a doctor.
Parents who have saved money in a 529 college savings account may be able to roll the funds into a 529 ABLE account in the event the beneficiary is later diagnosed with a disability such as autism.
States will provide families with multiple investment options to suit various savings goals and risk tolerance levels. Account owners will be able to make changes to their investments two times per year.
States with active 529 ABLE accounts
Each state will establish their own regulations to make 529 ABLE accounts available. Here are states that currently or will soon offer ABLE programs:
- Alaska - Alaska ABLE Plan
- Florida - ABLE United
- Kentucky - STABLE Kentucky
- Michigan - MiABLE
- Nebraska - Enable Savings Plan
- Ohio - Stable Account
- Oregon - Oregon Able Savings Plan
- Oregon - ABLEforAll
- Rhode Island - RI's ABLE
- Tennessee - ABLE TN
- Virginia - ABLEnow