Children with special needs not only require considerable out-of-pocket medical and therapy expenses, if they aren’t able to live independently as adults, their families must financially prepare to support them for the rest of their lives.
However, when parents try to save for their disabled child’s short- and long-term expenses, they often jeopardize their ability to qualify for public benefits like Medicaid and Social Security Income, which are often needed to cover current expenses and allow a parent to care of the child.
That’s where 529 ABLE Accounts come in to assist. These tax-exempt accounts allow parents to contribute up to $15,000 per year. Other family members and friends may also contribute. However, contributions must be made using post-taxed dollars and are not tax deductible on federal income taxes.
If the account reaches a total of $100,000, the disabled individual will no longer be eligible to receive Social Security benefits, but they still may qualify for Medicaid.
Families apply for ABLE Accounts through their state of residency. Currently, about 30 states offer ABLE Account management. If you live in a state that doesn’t, federal law allows any American to apply for the account, and some states can accept applications from anywhere in the U.S. – according to the ABLE National Resource Center, Ohio, Nebraska and Tennessee are three of those states.
ABLE Accounts are similar to 529 college savings plans in that they offer tax-free investment growth and tax-free withdrawals when the funds are used to pay for qualified expenses. Qualified disability expenses include healthcare, assistive technology, education, housing and transportation, job training and support, and financial management that aren’t covered by insurance or Medicaid.
In addition to ABLE Accounts, some families also set up a supplemental needs trust and take other planning steps as well. However, an ABLE account generally costs less to establish than a Special Needs Trust or Pooled Income Trust. It also offers more choice and control for families and the account beneficiary.
To find out if your state offers ABLE Accounts and for more information on how to apply, visit the ABLE National Resource Center’s website.