Should you open an ABLE account for a child with a disability?

Facebook icon Twitter icon Print icon Email icon
Kathryn Flynn

By Kathryn Flynn

March 20, 2018

The Achieving a Better Life Experience (ACT) was signed into law in 2014 and introduced a way for families with special needs to save in a tax-advantaged account as a supplement to private insurance and government benefits. Over 30 states have administered ABLE programs, and over 13,000 accounts have been opened, according to research firm Strategic Insight. Yet some financial advisors believe more people should be taking advantage of them.

“The perception is not great,” says Kathleen Oberneder, ChSNC, a financial advisor at Crescendo Wealth Management in Milwaukee, specializing in special needs planning. “There is a lack of information, and a lack of clear positive information – in an industry that is confusing to begin with,” she says.

What are 529 ABLE accounts?

Similar to traditional 529 plans, ABLE accounts offer tax-free investment growth and tax-free withdrawals when the funds are used to pay for qualified expenses. However, in addition to education costs, qualified disability expenses also include job training and support, healthcare and financial management. “It’s not education or nothing,” says Oberneder, whose daughter has Down Syndrome. For example, ABLE savings can be used to pay for summer camps for children with special needs or equestrian therapy for individuals with autism.

ABLE plans are available to individuals who were diagnosed with a disability before age 26, with a condition expected to last at least 12 consecutive months, and who are receiving benefits under SSI or SSDI (or who can obtain a disability certificate from a doctor). Contributions are limited to $15,000 in 2018, but the recent change in tax code now allows individuals who are working to deposit an additional amount up to the current poverty level.

But perhaps the most important benefit is that individuals can save a substantial amount in an ABLE plan without hurting eligibility for government assistance. Before the ABLE Act, individuals who earned more than $700 a month or had more than $2,000 in assets risked having to forfeit eligibility for Medicaid and SSI. Today, ABLE programs allow individuals to save as much as $300,000 in a tax-advantaged account (limits vary by state). However, once the account reaches $100,000 the individual will no longer be eligible to receive SSI benefits, but they will still qualify for Medicaid.

529 plan rollovers

The new tax law also included a change to allow tax-free rollovers from traditional 529 plans to ABLE plans. “This makes 529 College Savings Plans more attractive for families looking to save early for their child’s education by allowing them to roll them into 529-ABLE accounts if their child qualifies as disabled at a later date,” says Michelle Herd, CFP, Senior Client Advisor at TFC Financial Management in Boston.

“The reality is that many disabilities aren’t diagnosed immediately at birth and families that had saved into a 529 College Savings Plan and later discovered their child had special needs had to make the difficult choice of either withdrawing the funds and paying taxes and a penalty or rolling the funds over to another beneficiary all-together to be used for their education,” she says.

Even if an individual with special needs does plan to attend college, they may still want to consider rolling their 529 funds into an ABLE plan. According to nonprofit think tank New America, assets held in a traditional 529 plan will not disqualify a child from receiving Medicaid, however 529 savings will count toward the $2,000 SSI limit.

Why aren’t more people using ABLE accounts?

Despite their benefits, the majority of families and individuals with special needs are not taking advantage of 529 ABLE plans. In fact, many parents (and even some financial advisors) aren’t aware that ABLE accounts exist, and those who do are often confused about how they work.

Unlike 529 plans for education savings, ABLE accounts are direct-sold only. “ABLE Accounts are very new and present a great planning opportunity for families with members who have special needs, but one of the challenges we have run into is that the plans available at this point are available for consumers to purchase directly from the sponsor,” says Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management, a registered investment advisor in the DC Metro area.

“We can tell clients about them, but they have to open the plans and manage them on their own,” he adds.

Financial advisors may also have a difficult time advising clients on ABLE plans, because in most cases the family will also need to set up a special needs trust for their child. “Given that many of the other account limitations remained unchanged for 529-ABLE accounts, they remain a supplemental strategy for saving for care for a special needs beneficiary but will not likely fully replace the use of special needs trusts for many families,” says Herd.

Without guidance from a financial advisor, individuals and their caregivers may become overwhelmed trying to select an ABLE plan. The plans are sponsored by states, but there are no residency requirements to enroll. Some states offer tax deductions for contributions but amounts and rules vary. Just because your state offers a tax benefit for college savings in a 529 plan doesn’t necessarily mean they will offer the same benefit for ABLE savings.


Take Wisconsin, for example. According to Oberneder, many residents assume they can’t enroll in an ABLE program because their state doesn’t sponsor one. Yet this is far from the truth – not only can Wisconsin residents enroll in another state’s plan, funds withdrawn to pay for qualified expenses will be state-tax free, and account owners can claim a state tax deduction for contributions to any state’s ABLE program.

Overall, there has been a negative perception surrounding ABLE programs. Contributions and other limitations, such as the Medicaid payback requirement, have caused families and financial professionals to shy away from opening accounts. “There is a provision that allows states to reclaim residual funds in the account at the death of the beneficiary to repay Medicaid for expenses incurred on their behalf,” explains Herd.

Oberneder admits that ABLE programs aren’t perfect, but she tries to focus on the positive. “No, it’s not the best, but it’s something. Let’s look at what it is offering, how it’s already changed perceptions among employers and the investment community,” she says.

Parents who have a child with a disability are faced with a tremendous responsibility to understand their medical, educational and financial needs. “That is intimidating and overwhelming enough for parents. The last thing a parent wants to do is impact the child’s public benefits,” Oberneder says.

In order for ABLE programs to help more families, greater communication is needed. Oberneder is taking important steps by speaking to various organizations such as the Arc of the United States, employer affinity groups and state level forums. There has been a slow uptake in ABLE plan enrollment, but as more families become comfortable with and start to understand the benefits of ABLE programs she hopes to see this trend reverse. With parents of children with disabilities, “word of mouth spreads like wildfire”.

To enroll in an ABLE account, visit the program’s website and complete the online application process.

The original version of this post was published by Forbes.

A good place to start:

See the best 529 plans, personalized for you