529A as in ABLE

Unicorns, Bigfoot, mermaids.  It might be time to rethink if you're in the camp that believes these are myths.   That's because an even less likely creature has been shown to exist: a piece of legislation with overwhelming bipartisan support.   Yes, the Achieving a Better Life Experience (ABLE) Act became law just before the end of 2014. Were we not in the middle of the wackiest election I’ve ever had the privilege to try to avoid watching, this might restore my faith in our politicians.  

Seriously though, this is pretty big.  The act allows for tax-advantaged savings accounts, 529 ABLE or 529A, for people with disabilities.  If “529” rings a bell, it's because that’s the IRS Code through which the popular 529 college savings plans came to be. The thinking behind 529 ABLE was “If I can get a tax break on savings for little Emma’s college costs, wouldn't it be fair for the same to apply to saving to cover her brother Noah’s special needs?”  The answer: a resounding yes, and the 529A was born.

Not surprisingly, the 529A shares many of the same characteristics as the original 529 but, like most newborns, it’s got a lot of growing up to do. Indeed, it is not even possible to open a 529A as I write this since no financial institution offers them yet. When they do come to fruition over the next year or so, they will be state-sponsored like 529 plans for college, and offer the same option to use another state’s plan.  As with college 529's, you don’t get an upfront tax deduction on 529A's but contributions grow federal and state tax-free and money can be withdrawn tax-free if used for “qualified disability expenses”.  

But there remain differences too numerous to list here.  Some of these, e.g. contribution limits, are due to the newness of the legislation, and should shake out over time. Others, such as the implications for government benefit eligibility, are unique to 529A's. The takeaway? This post barely scratches the surface in terms of what you need to know to determine if a 529A makes sense for your family.  But if you have a family member who was diagnosed before age 26 with a disability expected to be long term, soon your options may expand beyond the traditional special needs trust. So keep your eyes open as the 529A evolves, and you may be surprised to discover that beneficial bipartisan legislation really does exist. Can unicorns be far behind??