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While many parents focus on college savings, parents of children with developmental differences face a host of disability-related expenses. Thankfully, a 529A plan — also called an ABLE account — can help families save for those expenses in a way that enjoys tax-free growth and distributions.
Let’s step inside this valuable investment tool and show how you can potentially save up to $16,000 per year for future disability-related care.
What is an ABLE account or 529A plan?
Achieving a Better Life Experience (ABLE) accounts — also known as 529A plans — help individuals with disabilities and their families save and invest money for qualified disability-related expenses.
Congress established ABLE savings accounts in 2014 with the Stephen Beck Jr., Achieving a Better Life Experience (ABLE) Act. Before that legislation passed, federal law only allowed individuals with disabilities to have a maximum of $2,000 in assets without risking eligibility for much-needed disability benefits. Stephen Beck, Jr. championed the legislation as a father whose daughter lived with Down’s Syndrome.
529A plans now empower families and individuals with disabilities to save up to $16,000 annually (as of 2022) without impacting eligibility for means-tested disability benefits from programs like:
- Supplemental Security Income (SSI) from the Social Security Administration (SSA)
- Department of Housing and Urban Development (HUD) benefits
- Supplemental Nutrition Assistance Program (SNAP) benefits
- Federal student financial aid (FAFSA) benefits
- Medicaid and Medicare
There is one caveat, however: The first $100,000 in an ABLE account won’t impact SSI benefits, but balances over that amount will count toward income caps.
Who is eligible for an ABLE savings account?
Generally speaking, eligibility for a 529A plan is limited to those with a certified blindness or disability “age of onset” before age 26. If you or your child meets this requirement and is already receiving SSI or Social Security Disability Insurance (SSDI), you can easily open an ABLE account.
If you don’t meet the above criteria, you may still be eligible for an ABLE account if:
- You meet SSA criteria and have medical corroboration. The SSA has a list of impairments for those 18 and older and another for childhood impairments. If you meet those criteria, you can seek a medical professional for a letter certifying the disability.
- You’re entitled to other disability-related benefits. Suppose you’re eligible for disabled widow’s or widower’s benefits (DWB), childhood disability benefits (CDB) or disability insurance benefits (DIB) for blindness or impairment onset before age 26. In that case, you can still open an ABLE account.
How do 529A plans work?
When you open an ABLE account, you’ll designate the account beneficiary — the person who will receive the benefits. Once open, almost anyone can make account contributions, including family, friends, the beneficiary themself and even trusts like a Special Needs Trust or Pooled Trust.
Contributions are made after-tax — this means you can’t deduct contributions on your federal income taxes, like those made to a traditional IRA account. However, some states will let you deduct 529A plan contributions on your state income taxes.
Money in ABLE accounts grows tax-deferred. In addition, withdrawals are tax-free as long as you use the funds for “qualified disability expenses” (sometimes referred to as “QDE,”) such as:
- Expenses for ABLE account management
- Employee training and support
- Burial and funeral expenses
- Financial management
- Healthcare expenses
- Basic living expenses
- Assistive technology
- Legal fees
529A plan contribution limits
The annual contribution limit for ABLE accounts in 2022 is $16,000 per year. However, employed account beneficiaries who don’t participate in an employer-sponsored retirement plan can potentially contribute an additional amount equal to the lesser of:
- The account beneficiary’s compensation for the year, or
- The 2022 poverty line amount of $12,880 in the continental U.S., $14,820 in Hawaii or $16,090 in Alaska
Say Taylor is the beneficiary of an ABLE account and works part-time in Nevada. If they earned $10,000, they’d be eligible for 529A plan contributions totaling $26,000 ($16,000 + $10,000) in 2022.
Can you get a tax credit for 529A plan contributions?
While state income tax credits will depend on where you live, designated beneficiaries can still score tax advantages on ABLE account contributions through the IRS Saver’s Credit.
Previously, the Saver’s Credit was for lower-income individuals making retirement plan contributions. However, a 2018 update now allows individuals with blindness or disabilities who make ABLE account contributions to use the credit.
To qualify for the Saver’s Credit, you must be the designated beneficiary of a 529A plan and:
- Be 18 or older
- Not be claimed as a dependent on someone’s taxes
- Not a student
According to the IRS, a student is someone who, during a portion of “each of any five calendar months” in a year, is “enrolled for the number of hours or courses that the school considers to be full-time attendance” or “taking a full-time, on-farm training course given by a school … a state, county or local government agency.” However, you may still be eligible for the credit if you were enrolled in “on-the-job training courses, correspondence schools or schools offering courses only through the Internet.”
You can calculate your tax credit using your adjusted gross income (AGI).
|2022 Saver’s Credit|
|Credit Rate||Married Filing Jointly||Head of Household||All Other Filers*|
|50% of your contribution||AGI not more than $41,000||AGI not more than $30,750||AGI not more than $20,500|
|20% of your contribution||$41,001 to $44,000||$30,751 to $33,000||$20,501 to $22,000|
|10% of your contribution||$44,001 to $68,000||$33,001 to $51,000||$22,001 to $34,000|
|0% of your contribution||more than $68,000||more than $51,000||more than $34,000|
|*Single, married filing separately or qualifying widow(er)|
Important note: Your eligible contributions may be reduced by any recent distributions you received from an ABLE account, retirement plan or IRA.
What states offer ABLE accounts?
As of 2022, 46 states and the District of Columbia offer ABLE accounts, with programs in Idaho, North Dakota, South Dakota and Wisconsin currently inactive.
However, all isn’t lost if you reside in one of those four states. You can open an ABLE account in any state that accepts out-of-state account holders.
To explore state programs, including those that accept nonresident account holders, we recommend using resources offered by the ABLE National Resource Center. You can use their map-based tool, an easy way to learn about different ABLE plans at a glance.
What’s the difference between a 529 plan and a 529A plan?
529A plans are similar to 529 accounts. Both have designated beneficiaries and allow contributions from multiple parties and investments in the account to grow tax-deferred. In addition, withdrawals are tax-free when used for qualified expenses.
The main differences between a 529A and a regular 529 plan are:
- Account qualification. 529A plans are exclusively for beneficiaries with blindness or developmental differences.
- Tax-free withdrawals. To avoid tax penalties, 529 college savings plan withdrawals are limited to qualified educational expenses. 529A plan withdrawals must be used for qualified disability-related expenses.
Establishing a 529A plan for yourself or a blind or disabled family member could feel like it has many moving parts. If you still have questions about whether an ABLE account is right for you, consider a conversation with a financial advisor. An advisor can help navigate your saving and investment options while preserving your means-tested benefits eligibility, both today and in the future.
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