“529 Able” Accounts Allow Caregivers to Save for Special Needs Beneficiaries Without Jeopardizing Their Government Benefits
Categories: Estate planning, special needs trusts, Winston Salem, North Carolina, NC.
The federal Achieving a Better Life Experience (ABLE) Act of 2014 authorized a savings account designed for Special Needs Beneficiaries. With similarities to the popular 529 education savings accounts, 529 ABLE accounts have already been rolled out in Ohio, Nebraska, and Florida, with active development taking place in most other states including North Carolina.
North Carolina parents and caregivers will soon be able to create a new “529 ABLE” savings account in the individual name of their disabled child or adult to save for that child’s future disability-related expenses. Primary benefits include tax-deferred savings for the disabled individual, without affecting eligibility for Medicaid, SSI, or other governmental disability programs. These unique features will allow caregivers to start planning and saving for disabled individuals immediately, with these funds allowed to be used as a supplement to governmental assistance.
In order to establish a 529 ABLE account, the disabled individual must be entitled to benefits under the federal SSI (Social Security Income) or SSDI (Social Security Disability Insurance) program, and must have been disabled before age 26. Because caregivers will be able to set up this account for the beneficiary right away and it can be accessed right away, there is no waiting period (such as with testamentary special needs trusts which do not become active until the death of the parent.) Note, however, that unlike properly designed special needs trust assets, funds remaining in a 529 ABLE account after the beneficiary’s death may be tapped to help repay state Medicaid costs.
The 529 ABLE account will not impact eligibility for government assistance programs, with the first $100,000 in such an account exempt from being counted toward the SSI program’s $2,000 resource limit. The account has a yearly contribution limit of $14,000, with any yearly contributions over that amount subject to a 6% penalty. Total lifetime contributions are limited to $394,000. The disability-related expenses paid for by account funds must be for the benefit of the individual with the disability, and must be related to the disability.
Allowable disability expenses are defined fairly broadly. In addition to medical expenses, allowable disability expenses may include housing, transportation, education, legal fees, and additional categories. To track 529 ABLE development progress in North Carolina, and for more information, click here.