Paying for College

Savings Plans for the Disabled

Earnings are tax-free, and funds can be used for a wide range of expenses.

Stuart Spielman is senior policy adviser and counsel at Autism Speaks, a national advocacy group. We spoke with him about new savings accounts being introduced to offer tax advantages for people with disabilities. Here is an edited excerpt of our conversation.

KIPLINGER: A law enacted in December authorizes tax-advantaged savings accounts for people with disabilities. How will these ABLE (Achieving Better Life Experience) accounts work?

SPIELMAN: The structure will be similar to 529 college-savings plans. Anyone can establish an account for an eligible beneficiary. I could open one for my disabled son, for example, or a person with a disability could open one for herself. A beneficiary can only have one ABLE account. Contributions to the account are after-tax, but earnings and distributions from the accounts for qualified expenses won’t count as taxable income. Annual contributions can’t exceed the federal gift-tax exemption, currently $14,000, and the total account can’t exceed state-based limits for 529 accounts.

Who qualifies for an account? A beneficiary has to have a disability that is present before age 26. The statutory definition of disability is “marked and severe” functional limitations. People who’ve met the disability standard for Supplemental Security Income (SSI) will qualify. There will also be a certification process defined by law. We’re talking about severe disabilities—conditions such as autism, Down syndrome or blindness—where future needs will be great.

What expenses will the accounts cover? Any number of things. These accounts are broader than college-savings plans because people with disabilities have such varied needs. The money can be used for educational expenses but also for assistive technology, transportation costs, specialized housing and job training. College-savings plans are of particular importance to people of a certain age, but disability is a lifespan issue.

How will the accounts work with other disability benefits? Assets in the accounts generally don’t count when determining eligibility for other programs, except that once you have more than $100,000 in the account, it can have an impact on SSI. This gives individuals a chance to provide for disability-related expenses without taking away the security of programs such as Medicaid and Social Security.

Will the accounts differ by state? Yes. You’re going to see some of the same creativity in the marketplace that we see now with 529 accounts, and the market will be very active.

When will these accounts be available? The law provides a six-month time frame. It’ll take time to develop the financial products, but we should have the accounts in 2015.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021

Recommended

5 Key Points to Consider Before You Claim Social Security
social security

5 Key Points to Consider Before You Claim Social Security

The big decision every retiree has to make is when to start taking their Social Security benefits. Here are five things to think about as you weigh yo…
September 16, 2021
What's My Social Security Full Retirement Age?
social security

What's My Social Security Full Retirement Age?

The year you were born determines when you become eligible for your full Social Security retirement benefit. Use our calculator to determine your full…
September 14, 2021
3 Reasons to Wait Until 70 to Start Taking Your Social Security Benefits
social security

3 Reasons to Wait Until 70 to Start Taking Your Social Security Benefits

In a rush to file for Social Security benefits at age 62? Many people are, but slow down and do the math first – or you might regret it.
September 9, 2021
15 Things Retirees Should Buy at Costco
Making Your Money Last

15 Things Retirees Should Buy at Costco

From its house brand Kirkland Signature lineup to name brands and hidden gems, the warehouse club offers bargains aimed at mature shoppers.
September 8, 2021