How Planned 2016 Changes Could Impact Financial Planning for People with Special Needs

Financial planning is a serious concern for most families with a member with special needs.  In order to qualify for many state and federal aid programs, the individual cannot have individual financial resources.  However, depleting individual resources can often leave a person financially vulnerable as they age.  Given that many people with special needs have some degree of financial dependency on their parents or other family members, who may be unable to provide support into adulthood, it can be a challenge for families to make appropriate plans.  However, a change is coming that should have a positive impact on financial planning for people with special needs; the ABLE Act.

The ABLE Act, which is short for Achieving a Better Life Experience is modeled on Section 529 college savings plans and accounts created under the ABLE Act will be known as 529A accounts.  Under the ABLE Act, disabled people and families with members with children who have special needs can contribute to these funds, which can be invested and grow tax-free.  In addition, withdrawals from ABLE accounts will not be taxable, as long as the withdrawals are spent on allowable expenses including: housing, education, transportation, health care, and rehabilitation.

Like traditional 529 college savings programs, the 529a programs will be state-sponsored, which means that the rules and regulations for the programs will be influenced by state laws.  Once fully activated, almost 6 million Americans will be eligible for the program.

One of the most obvious benefits of the program is that, under current federal guidelines, in order to receive Supplemental Security Income (SSI) or Medicaid, a beneficiary cannot have more than $2,000 in savings or other assets.  Not only does this discourage people from working so that they do not jeopardize benefits, but it also makes it difficult for families to set aside funds specifically for a child with special needs.   While families can currently use special needs trusts, those come with legal costs associated with set up, administration costs, and do not offer the same tax benefits as the 529a plans.  The goal of the ABLE Act is to give families a low-cost and easy way to save for their family members with special needs without putting benefits at risk.   Talk to your financial planning professional about how to incorporate a 529a plan into your long-term financial planning.


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