One of the unplanned events that clients experience is the disability of children and young adults. We talk about long term care for disability later in life but what tools are there for children and young adults who are unexpectedly disabled? ABLE accounts (Achieving a Better Life Experience) were established in 2014 for people who experience a disability for 12 months or more prior to age 26. The purpose was, in part, to give families a way to save for their children’s needs without impairing their ability to receive social security, Medicaid, and housing. Why are we talking about it in 2019? Because the Tax Cuts & Jobs Act of 2017 created an opportunity to transfers funds you’ve accumulated in a 529 to a 529A or ABLE account. If you have put money aside for a child who has grown up to experience a disability you may be able to transfer the funds to an ABLE account and give that recipient the chance to use it to cover basic living expenses, health, housing, transportation, legal fees, assistive technology, and similar expenses.
Like 529 accounts, ABLE accounts, also called 529A accounts, are created state by state and growth in the accounts is free from federal taxes if used for prescribed purpose listed above. Alaska participates in the ABLE Alliance and shares plan expenses with AZ, AR, CO, DC, IL, IA, KS, MN, MT, NV, NC, PA, and RI. Alaska’s accounts use Charles Schwab and Co. as custodian and the investments are managed by Schwab, BlackRock, and Vanguard. ABLE checking accounts are also available within our options through Fifth Third Bank and the whole ABLE Alliance program is managed by Ascensus LLC.
ABLE accounts act a lot like a special needs trust but can be established inexpensively. You can also leverage some tax differences by funding both ABLE and a special needs trust. However, funding an ABLE account with more than $100,000 should be looked at carefully.
As a general rule of thumb ABLE accounts can work best funding short-term and immediate needs while a special needs trust works well for inherited assets and longevity funds. If you have a child, a grandchild, or a friend who could benefit from this kind of planning let us help you understand the tools and guide you to the great special needs planning attorneys who we work with in Alaska.
Marietta Hall, CFP®