ABLE Accounts: The Newest Addition to the Section 529 Plan Family

​I must admit that the new savings account for disabled individuals did not catch my attention for a while.  I am intimately familiar with Section 529 plans, having three college-aged sons and serving on the Alabama College Counts 529 Savings Plan Board.  When our state Treasurer Young Boozer got behind these accounts early on and continued to support expanded legislation for them, I started researching them in earnest.  The 529 ABLE account was signed into law on December 19, 2014, along with the tax extenders package for that year.  The legislation is called the Achieving a Better Life Experience (ABLE) Act, and it expanded the tax code under Section 529 (529A).  How could legislation with a name like that not capture my attention? As a practicing CPA, I focused on the year end extenders and did not spend any time on the ABLE accounts.  Now that the Tax Cuts and Jobs Act has become law, the ABLE accounts have not only been spared, they are now more robust. 

The ABLE Act, under Section 529, allows for the creation of tax-advantaged accounts for disabled individuals to save money for college and other expenses in a tax-deferred account as a supplement to private insurance and public benefits.  Contributions to these accounts may be made by individuals in accordance with the annual gift exclusion amount, currently $15,000 per individual donor per year.  ABLE account holders can take distributions, provided they are for the beneficiary’s qualified disability expenses, and the distributions will not be included in gross income.
 
Prior to the ABLE Act, individuals living with disabilities had very little incentive to save money.  If a disabled person earned more than $700 per month or had personal assets in excess of $2,000 they risked not being eligible for public assistance programs. From an estate planning standpoint, a special needs trust was one of the few options available for making bequests to individuals with disabilities, without disqualifying them from other benefits.
 
The cost of raising a child is often discussed as is the cost of sending a child to college.  As CPA/Personal Financial Planners, we see clients listing these items as top priorities in the financial planning process.  However, the cost of raising and caring for a child or adult with a disability is even greater but is seldom discussed or planned for.  For example, according a report by the Department of Agriculture, a middle-income, married couple with two children is estimated to spend $233,610 to raise a child born in 2015, from birth to age 17.  Costs vary by family income level and location.  According to the College Board, the average cost of college tuition and fees for the 2017-18 school year was $34,740 at private colleges and $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities.
 
While your head is spinning thinking about these costs, consider this: the average cost of caring for an individual with a disability can top $2.3 million.  For families with a child with special needs, the planning priorities have changed and ABLE accounts should become one of their main planning tools.