savings

How to Use College Savings to Benefit Children with Special Needs

Under the new tax law, families with a 529 college-savings plan can now roll that money into a tax-friendly ABLE account to help a child with a disability.

Question: I heard that the new tax law now allows money from a 529 plan to be rolled over into an ABLE account for children who have special needs. How would I do that, and are there any limitations or special issues to consider?

Answer: Yes, the new tax law now allows families to roll over money from a 529 college-savings plan into an ABLE account. This year, you can roll over up to $15,000, which includes any rollovers and new contributions to the ABLE account. So if you or others have already put some money into a child’s ABLE account in 2018, those contributions will reduce the amount you can roll over this year.

If you want to move a larger balance from a 529 to an ABLE, you can spread your rollovers over several years. You can roll over the money from any state’s 529 into any state’s ABLE. (You can only have an ABLE in one state at a time). Also, a rollover is only permitted if the ABLE account beneficiary is the same as the 529 beneficiary or at least a “family member” of the 529 beneficiary. The technical definition of “family member” is slightly different for 529s and for ABLEs, and the states are now ironing out the details. Because the rollover provision is so new, most states don’t have forms to make the transfer automatically yet. “Someone interested in a rollover should check with both plans and figure out the most efficient way for them to facilitate the rollover at this time,” says Kaellen Hessel, of the Oregon ABLE Savings Plan.

Moving money from a 529 to an ABLE can be particularly helpful for families that started saving for a child’s college in a 529 but now aren’t sure if the child will go to college because of a disability. Stuart Spielman, of Autism Speaks, says he hears from a lot of families after their child receives a diagnosis of autism. They’re not sure what the future holds for their child and are concerned about what will happen to the 529 money if their child doesn’t go to college, he says. By rolling over money from the 529 to the ABLE, they can use it tax-free at any time for a wide range of qualified expenses to help the child maintain or improve his or her health, independence and quality of life. These expenses include education, housing, transportation, living expenses, employment training, assistive technology, legal fees and personal support services. See the ABLE National Resource Center factsheet for more. The money in the account doesn’t affect eligibility for most government disability benefits, and up to $100,000 doesn’t count toward the $2,000 asset limit for Supplemental Security Income Benefits.

Not everyone with a disability qualifies for an ABLE account, however. Beneficiaries can be any age, provided they developed a qualifying disability before age 26. They also must meet the disability requirements of either Supplemental Security Income or Social Security Disability Insurance. (They are automatically eligible if they started receiving those benefits before age 26.) Or they must submit a “disability certification” from a physician confirming that they meet the functional disability criteria. For more information about the certification requirements, see Opening an ABLE Account.

Thirty states plus the District of Columbia now offer ABLE accounts, and more are on the way. West Virginia, for example, will be launching its ABLE plan in a few weeks, says Chris Rodriguez, of the ABLE National Resource Center. Most states’ ABLE plans are open to people who live in any state, although several offer an income-tax deduction if you contribute to your own state’s plan. When deciding where to open an account, see if your state offers an income-tax deduction. Also compare investment options, fees, the minimum initial contribution and other details. Go to the ABLE National Resource Center’s website for an up-to-date list of available plans and details.

For more information, see Opening an ABLE Account For a Special-Needs Child.

Most Popular

What Biden Will Do: 24 Policy Plays to Expect From the Next Administration
Politics

What Biden Will Do: 24 Policy Plays to Expect From the Next Administration

The Kiplinger Letter forecasts President-Elect Joe Biden’s biggest priorities -- and the likelihood of progress on them.
November 19, 2020
The 13 Best Healthcare Stocks to Buy for 2021
Kiplinger's Investing Outlook

The 13 Best Healthcare Stocks to Buy for 2021

Most of the best healthcare stocks for 2021 will have some sort of ties to COVID, whether it's producing a vaccine or cure, or benefiting from the vir…
November 20, 2020
16 Worst Gifts to Impulse Buy for the Holidays
shopping

16 Worst Gifts to Impulse Buy for the Holidays

Don't let those holiday sale promotions persuade you into buying something now that will be much cheaper later.
November 18, 2020

Recommended

17 Best Amazon Prime Perks for the Holidays
savings

17 Best Amazon Prime Perks for the Holidays

Having an Amazon Prime membership isn't just about Amazon Prime Day. From Amazon for Students to Amazon Music, the benefits of Amazon Prime are far re…
December 1, 2020
Bad News for Super Savers
Financial Planning

Bad News for Super Savers

Low inflation keeps thresholds on retirement savings plans in check.
November 25, 2020
Find Higher Yields for Your Cash
Financial Planning

Find Higher Yields for Your Cash

Interest rates are scraping bottom, but here’s a road map to accounts that will help your money grow.
November 24, 2020
How to Automate Your Savings in 6 Easy Steps
savings

How to Automate Your Savings in 6 Easy Steps

Take advantage of technology to make building your savings and investing it a seamless – and pain-free – process.
November 19, 2020