Saving for children’s special needs
Joel Dresang: Lisa, you wrote an excellent article for our website looking at a new savings account for children. It’s like the 529 college savings plan, only it’s a little different. It’s aimed at children with disabilities. Let’s talk first about the 529 plan. What’s that about?
Lisa Lewitzke: Well, the 529 plan is just a way for parents and grandparents to save for college expenses as well as post-high school training programs. The money that is invested in the 529 plan will grow tax-deferred, and as long as those monies come out for a qualifying education expense, the money comes out penalty- and tax-free.
Joel: So, you wrote an article about ABLE accounts, which is specifically for children with disabilities. Why is that needed?
Lisa: The 529 plans, Joel, are specific to education expenses. So if a child that you’re saving for doesn’t end up going to college or perhaps needs the money for something pertaining to his or her disability, taking the money out of a regular 529 plan would be considered income and taxed and penalized.
Plus, in order to qualify for many assistance programs like supplemental disability income, there are requirements that you can have no more than $2,000 in assets, and money in those traditional 529 plans applies towards that limit.
Joel: So 529 plans are a good way to save for children’s futures. It sounds like the original plans left some kids out. How are the ABLE accounts different?
Lisa: So the money in the ABLE account is not limited to education expenses. You also would be able to take the money out if you needed it for medical needs or perhaps self-care needs. There’s a little bit more flexibility there.
Also, Joel, the money that’s saved within the ABLE account is exempt from that $2,000 limit if you are applying for government assistance.
Joel: And how much can you contribute to an ABLE account?
Lisa: The annual contribution limit is whatever the federal gift tax limitations are. So, for 2016, that’s $14,000. It’s a total of $14,000 of contributions. So, if you’re having other people add to the account – grandparents, friends or family – it’s fine. You just cannot exceed that $14,000 limit.
Each child is also only allowed one ABLE account.
Joel: And this isn’t just for children.
Lisa: The ABLE account is actually for anybody who has experienced a disability prior to age 26, as long as they meet the Social Security requirements for disability, they are able to contribute to an ABLE account.
Joel: And, like the 529 plans, these accounts are available through state programs.
Lisa: That’s right, Joel. There are four states currently that offer the ABLE accounts allowing outside residents to contribute. So Wisconsin currently does not have its own ABLE account plan, but it does allow you to contribute in the other states’ plans.
Joel: And the article that you wrote has some resources and links, including links to the state plans.
Lisa: Those websites are a great tool to take a deeper look into the plans and really compare them against one another to find which one is really best suited for you. You know, they also have telephone numbers, so if people have additional questions, they can give them a call.
So many of our clients are saving for their kids and their grandkids, and I just really felt like this new plan was important as another option and that people should be made aware of it.
Lisa Lewitzke is a registered representative and investment associate at Landaas & Company.
Joel Dresang is vice president-communications at Landaas & Company.
ABLE accounts are a new tax-advantaged savings plan for children with disabilities. For more information, click here for the ABLE National Resource Center.
(initially posted Dec. 30, 2016)