savings

Savings Accounts for Special-Needs Children

More states are introducing ABLE accounts, which allow you to save money that can be used tax-free to benefit a person with a disability.

Question: When you wrote about ABLE accounts for children with special needs a few months ago, only four states offered the plans, but you said that several more planned to introduce accounts soon. How many states offer ABLE accounts now?

Answer: Currently 18 states offer ABLE accounts, and five or six more are expected to introduce accounts in March or April, says Chris Rodriguez, of the ABLE National Resource Center. You can see a map with frequently updated information about each state’s plans at the ABLE National Resource Center website.

ABLE accounts are an exciting new development in special-needs planning. Like 529 college-savings plans, ABLE accounts are administered by the states, and most are open to residents of any state. People of any age who developed a qualifying disability before age 26 can open an ABLE account. Anyone can contribute to the account, but total contributions can’t exceed $14,000 per beneficiary each year. The money can be used tax-free for most expenses to benefit the person with the disability, and account assets up to $100,000 don’t count toward the $2,000 limit for Supplemental Security Income benefits.

You generally can contribute to any state’s ABLE plan (Florida’s is only open to its own residents). But you are better off contributing to your own state’s plan if it offers a tax break for residents who contribute. For example, Iowa taxpayers can deduct up to $3,239 of contributions per account owner in 2017. Michigan residents who file a single return can deduct up to $5,000 in contributions for the year, or $10,000 for joint filers. Nebraska taxpayers can deduct up to $10,000 in contributions for 2017 (or $5,000 if married filing separately). Ohio taxpayers can deduct up to $2,000 in contributions each year, and they can carry forward any excess contributions for an unlimited number of years.

Oregon taxpayers can deduct up to $2,310 in contributions for single filers or $4,620 for joint filers to ABLE accounts with beneficiaries under age 21. Virginia taxpayers can deduct up to $2,000 per year per tax return, and any excess contribution can be carried forward to future years (if you’re 70 or older, you can deduct the full amount in one year). For more information about each state’s tax rules, investments and other plan details, go to www.ablenrc.org.

If your state doesn’t offer an income tax break, you can open an account with almost any other state’s plan. Check the fees, investing options and other special perks. You usually have several investing options; several plans (including Florida, Nebraska, Ohio and Tennessee) offer Vanguard funds and a savings account.

You can’t have an ABLE account for one beneficiary in more than one state. But if you open a plan in a different state and your state (or another state) introduces a plan you like better, you can roll your balance into the other state’s plan.

For more information, see How to Open an ABLE Account for a Special-Needs Child.

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