insurance

How to Open an ABLE Account for a Special-Needs Child

If you live in a state that doesn't have one of these new tax-advantaged plans yet, you can open one in another state.

I saw your article about the new ABLE accounts for children with special needs. I'm interested in opening an account for my son, but we don't have a plan available in our state yet. Can I open an account in another state? How do I pick the best one?

Even though the federal law permitting ABLE accounts was passed in 2014, it took a while for states to develop their plans. Ohio was the first, introducing its plan in June. Florida, Nebraska and Tennessee now have plans, too, and several other states will open their plans in the next few months. Most plans will be available to residents of any state, although a few, such as Florida's plan, are limited to residents of that state. Otherwise, you can choose from any state's plan.

People of any age who developed a qualifying disability before age 26 can open an ABLE account and contribute up to $14,000 per year. The money can be used tax-free for any expenses that can benefit the person with the disability, which could include the cost of a home modification, transportation, a special wheelchair that isn't covered by Medicaid, and even therapeutic horseback riding, says Chris Rodriguez, senior public policy adviser for the National Disability Institute.

You can see an updated list of states offering plans, as well as updates on the status of plans in development, at the ABLE National Resource Center. The site also has a tool that helps you compare state programs by key features, such as initial minimum contribution, annual fees, investment manager and investment fees.

Selecting an ABLE plan is similar to choosing a 529 college-savings plan; look at the plan's fees, investing choices and minimums, and other special benefits (Ohio's plan, for example, offers a debit card). Florida, Nebraska, Ohio and Tennessee have different investment options (from four to seven funds, depending on the state), including some Vanguard funds and a savings account.

You may receive some extra perks by picking your own state’s plan, when it becomes available. Nebraska residents, for example, can get a state income tax deduction of up to $10,000 for their ABLE contributions, and Virginia residents will be able to deduct up to $2,000 in contributions on their state income tax return when their plan opens later this year. In Ohio, residents pay lower fees than nonresidents. You can't have two plans open at the same time, but you can roll your balance over to another plan.

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