Everything You Need to Know About 529 Able Accounts as a Tax-Deferred Option
As a parent of a child with special needs, you may have considered or already set up a Special Needs Trust (SNT). These vehicles can help provide a better quality of life for individuals with special needs by paying for many day-to-day costs that are not covered by government benefits.
What many parents don’t realize, however, is that SNTs cannot pay for expenses that Medicaid and Medicare already cover without affecting benefit eligibility. This means that even with the help of a Special Needs Trust, individuals with special needs are still stuck with the bare minimum, government-approved level of food and housing. It’s a catch-22 situation that can make it incredibly difficult to provide the quality of life your child deserves.
That’s where 529 ABLE accounts come in.
What Is a 529 ABLE Account?
In 2014, the Achieving a Better Life Experience (ABLE) Act was passed and with it, the 529 ABLE (also known as the 529A) account was created. It allows individuals with special needs to save up to $16,000 per year in a tax-deferred account similar to a 529 college savings plan and it acts as a supplement to government benefits.
Like college savings accounts, it is a state-run savings program available for individuals with qualifying conditions diagnosed prior to age 26. It is the first account that a disabled individual can have in their name and not have it count as a resource for means-tested benefits. These accounts also provide tax benefits in the form of tax-deferred growth and tax-free withdrawals if they are used for Qualified Disability Expenses (QDE).
How Much Can Be Contributed?
ABLE accounts have a $16,000 annual contribution limit from all sources as of 2022. An individual with special needs who has earned income and is not participating in an employer-qualified retirement plan can contribute an additional $12,880 per year.
The first $100,000 accumulated in the account will qualify for an exemption from means-testing. Account values that exceed $100,000 will impact SSI, Medicare, and Medicaid eligibility.
What Are Qualified Disability Expenses?
An individual can use their ABLE account funds for anything that is considered a Qualified Disability Expense (QDE), including:
- Medical and health expenses
- Legal fees
- Financial management
- Employment training and support
- Assistive technology and personal support services
Any withdrawals made for QDEs will be tax-free and will not reduce eligibility for SSI (as long as the $100,000 account maximum is not exceeded). This makes an ABLE account an effective supplement to a Special Needs Trust when it comes to housing expenses. In fact, many individuals use funds from a 529A to supplement the housing payments provided by Medicaid.
It is important to note that states may assert a payback from the ABLE account upon the passing of the beneficiary. This payback applies to any Medicaid expenses paid by the state after the establishment of the ABLE account. Amounts paid by Medicaid prior to the establishment of the ABLE account are not eligible for reimbursement from the 529A.
Any funds remaining in the account after the individual with special needs passes could be subject to the State’s Estate Recovery Act.
Who Can Contribute?
Anyone can contribute to an ABLE account, including an individual with special needs or a friend, family member, trust, estate, or another third party. The only caveat is the annual contribution limit.
Certain rollovers are also permitted from other ABLE accounts or traditional 529 college savings plans.
Take the Next Step
ABLE accounts are a tool for supplementing Special Needs Trusts and improving the quality of life for your loved one. At Aviance Capital Partners, we have experience helping clients navigate important ABLE account decisions, including investment options and ongoing account monitoring. If you would like to learn more about ABLE accounts and how they can be used to benefit your loved one, we would love to hear from you! Reach out to us at email@example.com or click here to schedule a no-obligation phone call.
 What Can a Special Needs Trust Be Used and Not Used to Pay For (shalloway.com)
 2022 ABLE Update – Ticket to Work – Social Security (ssa.gov)
 2022 ABLE Update – Ticket to Work – Social Security (ssa.gov)
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of ACP as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.