ABLE to save more for special needs
Joel Dresang: Lisa, I want to talk with you about a special savings account for people with special needs. It’s called the ABLE account, which stands for Achieving a Better Life Experience. And there are some enhancements to some of the benefits.
Lisa Lewitzke: That’s right, Joel. Over the last few years, the number of states offering the plans has multiplied. And some changes in tax laws have made the ability to contribute easier and more generous.
Joel: First, how about a reminder of what an ABLE account is and how it works?
Lisa: Well, an ABLE account is just like a 529 college savings plan but for people with disabilities. So, the contributions grow tax-deferred in the account, and as long as the money is used for a qualifying expense, the distributions are tax-free. The difference is that the distributions can be used for more than just education expenses.
Joel: And only one account is available per person. And anybody can contribute to the account, as long as the contributions in the course of a year don’t exceed the federal gift tax exclusion, which right now is $15,000. Talk about some of the enhancements.
Lisa: One of the enhancements is that if you are an employed beneficiary of an ABLE account, and you have earned income, you can almost double that $15,000 annual contribution limit. They allow you to contribute an additional $12,140 a year.
They are also allowing you to take money that was previously saved in a college savings 529 plan and transfer that over into an ABLE account. Now, that does go towards that $15,000, so you have to be careful with that.
And also, ABLE account beneficiaries can apply for the Saver’s (tax) Credit, which is meant for low-income workers to possibly lower taxes they may owe, or increase a refund.
Joel: And there are also more plans available for ABLE accounts.
Lisa: Well, like 529 plans, ABLE accounts are state-run programs. So now 39 states are offering the plans. Also, if you just go out to the ABLE National Resource Center website, you can compare the states against each other and get all kinds of great resources.
Joel: And Lisa, I know that your family has looked into an ABLE account for your son, Wyatt. Do you mind sharing how these enhancements can help?
Lisa: Well, the ability to transfer his typical 529 college savings plan into an ABLE account is huge for us. We’ve saved for him since he was born, and so our only choice previously was to give that money to a sibling or to completely start over from scratch for him.
Also, we don’t know what Wyatt’s future is going to hold, and so, knowing that we can use those distributions for not only education expenses but for medical and living expenses for him, that’s pretty important.
Joel: Any other advice for people who might be looking into an ABLE account?
Lisa: I think using the ABLE account in conjunction with other special needs savings vehicles is a great way to go. The accounts are so flexible and accessible, some even offering a debit card. There’s always an extra expense that comes up with any child with special needs, so any extra advantage is important.
Joel: Thanks, Lisa, and as you mentioned, the ABLE National Resource Center has more information and links to other resources. And that’s at ABLEnrc.org.
Lisa Lewitzke is a registered representative and investment associate at Landaas & Company.
Joel Dresang is vice president-communications at Landaas & Company.
Money Talk Video by Peter May and Jason Scuglik
Saving for children’s special needs, a Money Talk Video with Lisa Lewitzke
Smarter saving for college, a Money Talk Video with Isabelle Wiemero
Appreciating differences, a 2013 Money Talk Video featuring Lisa’s efforts to raise awareness of childhood strokes
ABLE Accounts – Tax Benefit for People with Disabilities, from the IRS
Publication 907, Tax Highlights for Persons With Disabilities, from the IRS
ABLE National Resource Center
(initially posted August 30, 2018)
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