Millions of students will enroll in college this year, many using money from a 529 tax-advantaged savings plan to help defray the ever-growing cost of higher education. These plans have been in existence, in one form or another, since the late 1980s and have become the cornerstone for college financial planning. Two of the greatest benefits of 529 plans are: account earnings grow free from federal income tax, and withdrawals are tax-free as long as the proceeds are used for qualified higher education expenses.
What if Disabled?
But what if significant disabilities stand between your child and college? Any family with a disabled member will tell you: even if college expenses are not in the future, it doesn’t mean significant educational expenses will not exist. Fortunately for these families, a new tax-advantaged savings plan was introduced in late 2014, through the Stephen Beck, Jr., Achieving a Better Life Experience Act, known by the acronym ABLE Act.
Long List of Covered Expenses
The plan, referred to as 529A or 529ABLE, is similar to an education 529 plan in that earnings on the contributions are not taxed as they accumulate and are tax-free when withdrawn if they are used to pay for qualified disability expenses for the designated beneficiary. The list of qualifying expenses is long, covering a greater range than 529 expenses, and includes education, housing, transportation, employment training and support, technology and personal support services.
Easier than a Special Needs Trust
Having a 529A account does not disqualify an individual from receiving federal and state aid for the disabled, such as Supplemental Security Income or Medicaid, as long as the amount held in the 529A does not exceed $100,000. This account can offer an easier, cheaper option than a special needs trust.
There are significant differences between the 529 and 529A plans. Final regulations for the 529A plan will be issued by the IRS later this year, and should be reviewed to determine if this plan could be right for your family. In the meantime, you can find more information by visiting http://www.savingforcollege.com/529-able-accounts/