New ABLE accounts – an option in special needs planning

Mo & downs syndrome childCollege savings plans, often referred to as “529” plans (“NextGen” plans in Maine) have been around for a long time, as a way for parents to set aside funds for a child’s education. These accounts receive favorable tax treatment and have been quite popular with parents and grandparents.

However, this option is generally not useful for parents and grandparents of special needs children, who may never pursue post-secondary education because of their disabilities. These families also worry that a 529 plan will cause the child to lose benefits such as SSI and MaineCare (Medicaid).   Just the same, these disabled children are likely to need funds in the future for things other than college, such as adaptive equipment, transportation, health and wellness activities, and job training.

Soon these families will have the opportunity to set money aside for their disabled children in an account known as an “ABLE” account. “ABLE” stands for “Achieving a Better Life Experience” and is a federal law enacted in 2014.

These are some of the features of an ABLE account:

  • The funds in the ABLE account will grow tax free.
  • Distributions for “qualified expenses” (such as the things referred to above) are not taxed. (Non-qualified expenses, however, are taxed and subject to a 10% penalty.)
  • As much as $14,000 per year can be contributed each year to the beneficiary’s ABLE account.
  • Funds in the ABLE account, up to $100,000, will not affect the beneficiary’s eligibility for SSI or MaineCare (Medicaid).
  • Any funds remaining in the ABLE account when the beneficiary dies must pay back the state of Maine (or other state where the beneficiary lives) for what the state has paid for the beneficiary under the Medicaid program.

Before this savings option becomes available to special needs children and their families, the state must establish its own ABLE account program. This is likely to occur through the Financial Authority of Maine (FAME), which administers the NextGen program.   Hopefully this will happen soon, so that special needs families have the same opportunities to save for a disabled child’s future as they do for non-disabled children.