Saturday, August 29, 2015

529A (Able tax-free savings accounts) slowly state-by-state rollout starts 2016.

Able accounts are coming, slowly starting next year. On my quick review the fund looks like a good way to pay for housing.

The Arc has a useful fact sheet, but it predates authorization and treasury rules are only up for public hearing in October 2015. I think some of this is now incorrect:

  • At $100,000 SSI benefits are suspended and restarts if falls under 100K, but medicaid benefits continue. When individual dies balance goes to medicaid.
  • residents of one state can open accounts in another state, so you don’t need to wait for your state to create an account. (But NYT article below suggests we have to wait? Confusing)
  • beneficiaries can rollover from an ABLE to a 529 if no longer disabled including another family member’s ABLE or 529 (Doesn’t say whether one can go the other direction, from a 529 to an ABLE). Rollovers can also go to a special needs trust. (q: So if the 100K limit nears can one rollover to the trust? What about other direction? 
  • The fund can be used to pay housing (this is the big one), transportation (bicycle?), health related (gym?), disability care expenses (legal fees, oversight, etc).

The domain is supposed to go live in September 2015 with more information. There is a $14K limit to fund per year.

The NYT has a more current review of 529A accounts, emphases mine. It’s unclear whether the 100K limit will be a balance limit or a lifetime contribution limit and whether that will vary by state. If it’s a lifetime contribution limit that’s not so good. It’s also unclear what happens if someone changes residences.

Tax-Free Savings Accounts for Disabled Are Expected in 2016 -

… each must approve its own legislation to set up a plan. As of Aug. 13, 40 states and the District of Columbia either had passed laws or had proposals pending, but 10 states had no bill pending, according to an online registry maintained by the Arc, an advocacy group for people with intellectual and developmental disabilities.

The Treasury, meanwhile, has proposed rules to govern the accounts, and will hold a public hearing on them in October.

As with 529 college savings plans, 529A accounts allow contributed funds to grow tax-free, and to be withdrawn tax-free for eligible expenses. Anyone — including family and friends of a disabled person, as well as the disabled person — can contribute to the accounts, but there is no federal tax deduction for the contribution.

An important feature of the accounts is that they allow people with special needs to save for their care and education without disqualifying them from receiving government benefits….

… Typically, families must set up a special-needs trust to set aside funds for a disabled child without putting benefits at risk — a step that can involve costly legal fees to establish and maintain the trust. Funds in the Able accounts, however, won’t count toward that limit, so they may provide a simpler, lower-cost alternative for many families.

The accounts, however, have some limitations. To qualify, you must have been disabled before age 26. The funds have an annual contribution limit equal to the annual gift tax exclusion — currently $14,000. The account can grow to $100,000 without jeopardizing federal benefits (although some states may set much higher overall total contribution limits), but balances over that amount may prompt a suspension.

…  families may want use a combination of a 529A and a special-needs trust, depending on their financial situation, said Christopher Krell, a financial adviser and principal with Cassaday & Company. With special-needs trusts, there is no contribution limit and they can be structured to avoid Medicaid repayment. “The 529A accounts are great,” Mr. Krell said, “but they’re not going to get rid of special needs trusts.”

■ Can an individual have more than one 529A account?

No. Unlike 529 college savings accounts, you can have just one 529A account, and it must be established in the state where you live (or through the program your state contracts with).

■ How can I find out when 529A accounts will be offered in my state?

You can check with the agency that administers your state’s 529 college savings plan for updates. In early September, look for an online 529A resource center at

The state-by-state rules sound like a mess; I wonder if that was a GOP congress outcome. If the plans end up restricting an individual ability to move between states I wonder if there will be a constitutional challenge.

My gut sense is that we’re going to get a lot less than what we’d hoped for, but maybe things will improve over time. The special needs trusts remain very important. The real impact could be on paying for housing — that’s increasingly important given the seeming collapse of programs designed to provide housing for disabled adults.

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