A 529 ABLE account (or 529 A Savings Plan) was created by the Achieving a Better Life Experience (ABLE) Act of 2014 to provide Americans with disabilities the opportunity to save up to $15,000 (2019 limit) per year in a tax-deferred account similar to a 529 college savings plan to supplement their government benefits. Contributions may be made by any person using post-tax dollars. If the beneficiary works, the beneficiary can also contribute part or all of their income to their ABLE account up to the poverty-line amount for a one-person household (which was $12,490 for 2019) unless their employer contributes to a workplace retirement plan on their behalf. Earnings in an ABLE account grow tax-deferred and withdrawals are tax-free when used for qualified disability-related expenses including, but not limited to, education, housing, transportation, assistive technology, employment training and support, financial management and health care expenses. The money can be used over the lifetime of the beneficiary as long as the funds are used for qualified expenses.
Who can qualify?
Individuals who are already receiving benefits under the Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI) are eligible. If not receiving SSI or SSDI, they may still be eligible if they certify that they are blind or disabled and have a written diagnosis of their condition by a licensed physician. However in either case, the onset of the disability must have begun prior to age 26.
How it works
The first $100,000 saved in the account is exempted from the $2000 Social Security Income limit and beneficiaries will still receive Medicaid regardless of account size. Like a 529 college savings plan, each state establishes its own plan and account owners can make changes to their investments two times a year. In Massachusetts, there are no state tax benefits in choosing the Massachusetts plan over another state’s plan, so another state may offer a plan with better suited investment options, lower fees, or preferred features. ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 per year of these contributions may qualify for this special credit designed to help low and moderate-income workers. There is also a maximum contribution limit of $400,000. You may not make additional contributions to the plan when the total value of the account is at or above the maximum contribution limit.
A 529 ABLE account may be a great way for Americans with disabilities to save in a tax-advantaged account, similar to a 529 college savings plan, as a supplement to their government benefits. Since the ABLE Act of 2014 passed, Americans with disabilities now have more options in addition to special needs trusts to maintain their government benefits while also saving for qualified disability-related expenses. As always, the Cadence team is available to help you with any questions as to what might work best for you and your family.
Editors Note: This article was originally published in the October 2019 edition of our “Cadence Clips” newsletter.