529A Plans: Saving for a Child with Special Needs

Many parents and legal guardians in the U.S. hear about 529 college savings accounts almost as soon as they become caregivers. Attending a college or university is a major expense that can easily strain a family’s resources if they haven’t prepared properly. Having a designated place to efficiently save for a child’s education in a tax-free and potentially tax-advantaged account can be helpful.

For some families, however, college isn’t the only expense to consider. Parents and guardians who also cover disability-related expenses for a child know how quickly costs can accumulate. That’s where 529A savings accounts come in.

In 2014, leveraging how successful 529 plans had become, Congress approved the Achieving Better Life Experience (ABLE) Act. The act included the creation of the Internal Revenue Code (IRC) Section 529 “ABLE” plan, known familiarly as 529A accounts. These accounts give families the opportunity to make after-tax contributions — up to $15,000 per year[i] — which can grow and be withdrawn tax-free to cover qualified expenses. These expenses include, but are not limited to:

  • Education, housing, transportation and other basic living expenses
  • Preventive and reactive health and wellness costs
  • Fees for financial, administrative and legal services
  • Employment training and support
  • Assistive technology and related services

Any child or young adult who has been diagnosed with a qualifying disability by a medical professional before turning 26 years old is eligible for a 529A account.

What are the benefits?

Aside from generating tax-free savings, one of the key considerations for a 529A plan is that the account may not be considered an includable asset for many government benefit programs (subject to limitations.)

“In fact, the government benefits that are preserved when disabled beneficiaries accumulate assets inside a 529A plan can be worth significantly more than the tax-free growth itself,[ii]” wrote Andrew Komarow, founder of Planning Across the Spectrum.

Komarow goes on to describe an effect he calls “benefit purgatory.” As some people begin working (and it’s important to note that some states allow persons as young as 14 years old to be employed,[iii]) they can be met with a challenging circumstance: earning too much money to qualify for benefit programs but not enough to fully support themselves and enjoy financial independence. Having access to a 529A plan may provide a critical bridge for disabled persons and create a path to self-sufficiency.

Evermay’s view

While there are benefits to investing in a 529A account, our goal is to help you make the best financial decisions for you and your family and to ensure you’re receiving the most appropriate guidance for your unique situation.

Many families are unaware this option exists. If you think your family could benefit from a 529A account, please reach out and we’ll be happy to discuss the nuances and finer details in greater depth.

 

[iii] https://www.dol.gov/general/topic/youthlabor/agerequirements

 

Blog commentary and opinions expressed herein represent a snapshot in time and are subject to change. Any discussion or information contained in this blog does not serve as the receipt of, or substitute for, personalized investment advice from Evermay.