New 529 ABLE Plans Offer Benefits, Limitations, Explains Michael Gilfix, Special Needs Planning Attorney

Law Firm Newswire



Palo Alto, CA (Law Firm Newswire) February 9, 2015 – On January 1, 2015, a new federal law took effect, authorizing states to establish a new kind of tax-favored savings account for some special needs individuals.

The Achieving a Better Life Experience (ABLE) Act created an account for special needs individuals that is similar, in some ways, to a 529 college savings account.

A 529 ABLE account will allow special needs individuals and their families to save up to $100,000, which can be used for some living expenses, while still allowing the individual to qualify for Supplemental Security Income (SSI). All money saved in the account can grow tax-free, as it could in a traditional 529 college savings account.

Organizations such as Autism Speaks, the National Down Syndrome Society, and other advocates for special needs individuals have been strong backers of the ABLE Act over the past several years. Special needs planning attorney Michael Gilfix agrees that the passage of the Act is a major step forward for special needs individuals, and he encourages the families of those with special needs to learn about their options.

“Before the authorization of 529 ABLE accounts, a family unable to fund a special needs trust had no real way to put together a savings account to help their special needs son or daughter live independently,” said Gilfix. “Now, all families of special needs individuals have more options.”

According to Gilfix, the cost to set up a 529 ABLE account will be much lower than for a special needs trust. And as with a special needs trust, the 529 ABLE account allows a special needs individual to spend money from the account on certain essentials such as housing, transportation and educational expenses — all without disturbing SSI eligibility.

However, the 529 ABLE account does have some limitations that a trust does not, notes Gilfix. The maximum annual contribution cannot exceed the amount of the annual gift tax exclusion, currently set at $14,000. In addition, if the balance in the account exceeds $100,000, the individual will lose SSI eligibility. Each special needs individual may only have one 529 ABLE account.

“Creating a financial safety net for a special needs individual can be complicated,” said Gilfix. “Hopefully, this new savings opportunity will have a material impact on the lives of those with special needs across the country.”