ABLE accounts have been around since 2014, but in late 2022 they got a facelift via the ABLE Age Adjustment Act, which passed as a part of SECURE 2.0. This new law ups the maximum age of onset of disability from 26 to 46, nearly doubling the eligible user base.
Let’s take a look at what that means for you as you save for your disabled child’s college education.
What is an ABLE account?
An ABLE account (529A) is a type of 529 plan for disabled individuals. It does have a lot of the same long-term tax advantages, like not paying taxes on gains as long as the money is used for qualified expenses. But under the hood, ABLE Accounts can be even more advantageous than your typical 529.
First, while an ABLE account must be held in the disabled individual’s name, it is not a countable asset for FAFSA purposes. That means any money saved in an ABLE account won’t hurt your child’s chances of securing financial aid.
This is compared to your traditional 529 account. Typically, you want to hold the 529 account in the parents’ name with the child as the beneficiary. Using this strategy, any assets over $10,000 are counted at the parental rate of 5.64%. Depending on how much you’ve saved, the effect on financial aid offered is likely to be minimal, but will still weigh more heavily than assets held in a 529A/ABLE account.
Another way that ABLE accounts differ from traditional 529 accounts is that while you can use the money for educational expenses – whether that be K-12 or higher education costs – you can also use them for any qualified disability expenses.
Since you cannot separate your child from their disability, the range of expenses can be quite large. Some qualified disability expenses include but are not limited to:
- Employment training and support
- Assistive technology
- Health-related expenses
- Prevention and wellness expenses
- Financial management and administrative services
- Legal fees
- Basic living expenses including food
- Funeral and burial expenses
This means that unlike a traditional 529 account, you can rest assured that the money you save for your child in a 529A account can be used for life expenses even if your child doesn’t go to college. You won’t lose it or have to roll it over to another beneficiary in order to preserve the tax advantages.
What is the ABLE Age Adjustment Act
Currently, in order to qualify for an ABLE account, the account holder must have a disability with an age of onset before age 26. But in late December 2022, the ABLE Age Adjustment Act passed as a part of SECURE 2.0.
This bipartisan legislation ups the qualifying age of onset of disability from 26 to 46, which means an estimated 6 million Americans will be newly eligible, including about 1 million veterans. While the bill has been signed into law, it won’t go into effect until the 2026 tax year.
If you’re saving for a disabled child, you aren’t likely to be affected by this age change. However, if you are a parent who has a disability that you incurred between the ages of 26 and 46, you may be newly eligible for one of these accounts yourself.
The ABLE Age Adjustment Act will bring fees down.
If you are a parent saving for a disabled child’s college education, the ABLE Age Adjustment Act is still reason to rejoice – even if you’re not affected by the age change. That’s because the legislation is expected to bring account fees down.
ABLE accounts are administered by private program managers in each state. In order to recoup the costs of running these programs, program managers charge fees on ABLE accounts. These fees vary by state.
As with any program, ABLE accounts are less expensive to administer when you have volume. Because the ABLE Age Adjustment Act nearly doubles the number of individuals eligible for an ABLE account, it is expected that when the floodgates open to more people in 2026, we will see lower fees passed on to consumers.
The potential of lower fees can only be brought to fruition if more people actually open ABLE accounts, though.
“As 6 million more people will be ABLE-eligible in 2026, we would hope [to see fee reductions],” says JJ Hanley, Director of Illinois ABLE. “ABLE Programs need the help of disability advocacy organizations and groups across the country to help spread the word about the ABLE Age Adjustment Act and the benefits of ABLE accounts.”
You might not have to wait until 2026 to see lower fees.
That doesn’t necessarily mean you have to wait until 2026 to see lower fees. In some states, ABLE program directors – who work with the states’ treasury offices – have been working behind the scenes to negotiate lower rates with their program managers in the present.
For example, states that are in the National ABLE Alliance – including Hanley’s home state of Illinois – recently negotiated lower fees with their program manager, Ascensus. The first fee reduction was in July 2022, with another reduction enacted in January 2023 when the number of National ABLE Alliance accounts reached a new threshold of 35,000 accounts.
National ABLE Alliance states include:
- New Jersey
- North Carolina
- Rhode Island
The National ABLE Alliance also includes ABLE accounts issued by Washington, D.C.
Even if you’re in a state that has not recently lowered fees, the tax advantages you get for saving in a 529A account are extremely likely to outweigh the fees you are charged today – even if those fees get lower in the future.
Start saving today to make tomorrow’s financial burden a little lighter.