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

The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
4 Big Retirement Blunders (and How to Avoid Them)
retirement

4 Big Retirement Blunders (and How to Avoid Them)

It’s too bad, but financial advisers see these four mistakes all the time. Don’t fall into the same traps.
October 6, 2021
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for roughly a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, includi…
October 8, 2021

Recommended

Saving for College? Everything You Need to Know About 529 Plans
529 Plans

Saving for College? Everything You Need to Know About 529 Plans

529 plans offer considerable convenience and potential tax savings when putting money aside for education. That said, there are still a range of rules…
October 22, 2021
4 Ways to Earn More From Your Rainy Day Fund
savings

4 Ways to Earn More From Your Rainy Day Fund

You should set aside enough money to cover three to six months of living expenses in case of an emergency. But sticking this cash in a savings account…
October 12, 2021
Negotiate a Better Deal
Smart Buying

Negotiate a Better Deal

For a price break on a number of products and services, all you have to do is ask. But first read up on tactics the experts use.
September 30, 2021
Readers Share Tips for Raising Money Smart Kids
Raising Money-Smart Kids

Readers Share Tips for Raising Money Smart Kids

What's the right age for a child to have their own credit card? Opinions vary.
September 29, 2021