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The traditional planning tool to care for special needs individuals has been the special needs trusts. While this is a good tool for certain situations, it can be complex and comes with significant setup and maintenance costs. This makes the vehicle awkward for five-figure to low six-figure balances.

In 2014, Congress passed the Achieving Better Life Experiences Act, created 529 ABLE accounts to provide for special needs individuals.  As the name suggests, the accounts work in a manner similar to 529 college savings accounts, including state sponsorship.

Significant rules for these accounts are listed below:

  1. The qualifying disability has to occur before the age of 26.
  2. The account is owned by the beneficiary of the account.
  3. Contributions can be made by anyone but are limited by gift tax rules.
  4. Growth is tax-free.
  5. Balances below $100,000 do not impact eligibility for public benefits.
  6. Balances greater than $100,000 will impact SSI eligibility.
  7. Total balance limits are defined by the sponsoring states, typically $300,000.
  8. Limits on fund use exist but are fairly broad.

Initially, states could only offer these accounts to state residents. Since not all states had plans, some families were left out. Clean up legislation corrected this shortcoming so many plans are available for all Americans.

These feature of these plans make 529 ABLE accounts a reasonable mid-market option. For families that can afford to dedicate more than $300,000 for the care of a disabled member, trusts may still be a preferable vehicle.

As with any financial planning tool, the application is dependent on the situation and the goals of the family. Important factors in selecting the best tool include tax consequences, competing goals, current and future contribution amounts, independence of the beneficiary, and several other family considerations.

If you would like to discuss 529 ABLE accounts in greater detail and understand their use in caring for a special needs family member, please contact us.