The Sum and Substance of 529 ABLE

By some estimates, a family with a special needs child will spend as much as an additional $1.4 million over the child’s lifetime, compared to a family without special needs. To cover these expenses, most families will need every resource at their disposal, including supplemental security income (a government program that pays benefits to disabled individuals who have limited resources), Medicaid and their own savings. While special needs trusts and pooled special needs trusts have traditionally been the pillars of savings for families with a special needs child, a more recent option has entered the market: the 529 ABLE account.

In 2014, Congress passed the Stephen Beck Jr. Achieving A Better Life Experience Act (ABLE) which authorized states to create programs for tax-advantaged savings accounts (much like a 529 College Savings Plan) for individuals with disabilities. All 50 states have enacted ABLE legislation, and 21 states have active ABLE programs. In our area, Connecticut and New Jersey are still building their programs, while the New York ABLE and the Massachusetts Attainable Account were launched this year. Like 529 College Savings Plans, there are several states that allow nonresidents to participate in their state-run program.

The Sum

529 ABLE accounts allow individuals with disabilities, their families and friends to contribute a total of $14,000 per year to a tax-advantaged account. Contributions are invested in underlying funds and grow tax-deferred.

If withdrawals are used for qualified disability expenses, they are not subject to federal income tax. For ABLE purposes, qualified expenses include health care, personal support services, financial and administrative services, employment training and support, and possibly housing (more on this later). See a complete list of qualified disability expenses visit SSA.gov.

It is important to note that accumulations up to $100,000 do not affect supplemental security income eligibility. Accumulations up to the state-specified limit (varies, but as high as $400,000) do not affect Medicaid eligibility.

The Substance

To be eligible for a 529 ABLE account, the onset of disability must be before age 26 and the individual must receive supplemental security income, or meet social security’s definition of a person with a disability and receive a letter of certification from a licensed physician.

Unlike a 529 College Savings account, the person with the disability is always the account owner and beneficiary. If the individual is a minor or is unable (or chooses not) to self-manage the account, a parent, guardian or agent can gain administrative control via a Person with Signature Authorization (PSA).

After the death of the beneficiary, the state may file a claim for reimbursement of state Medicaid benefits which were paid out over the beneficiary’s lifetime, commonly called “Medicaid pay-back”.

Families are generally advised to use the funds within the same month as they are withdrawn to ensure the funds do not count as a resource and impact supplemental security income.


One of the biggest benefits of a 529 ABLE account is that accumulations of less than $100,000 do not count as a resource in the supplemental security asset limit calculation. Prior to this Act, individuals with disabilities could not accumulate more than $2,000 in savings (outside of a Special Needs Trust) without risking suspension of their supplemental security income.

Secondly, assets in a 529 ABLE account grow tax-deferred. The account owner or beneficiary does not pay tax on capital gains and income incurred, and if used for qualified expenses, withdrawals are exempt from federal income tax.

A 529 ABLE account is easy to set up and relatively inexpensive to establish. Many programs allow for small initial investments (as little as $25), and some programs charge a minor set-up or annual administrative fee, in the realm of $25-50. This allows a starting point for families who find it hard to save in a lump sum or fund a trust.

To be considered qualified under the Act, a covered expense needs to relate to the beneficiary’s disability. In October of 2016, the Social Security Administration (SSA) indicated that distributions from a 529 ABLE account to pay for housing will not reduce supplemental security income. We await further confirmation from the SSA, but if definite it would create a new opportunity for funding housing costs.

If a 529 ABLE is right for our family, how do we get started?

To start, compare available programs. Savingsforcollege.com has a good side-by-side comparison of all available programs where you can readily see which ones are open to out-of-state residents, which have state income tax deductions and the range of fund expense ratios. The ABLE National Resource Center  offers even more comprehensive information on available programs.

Next, consider the following:

  • The quality and breadth of investment options. Are there balanced/ asset allocation funds available? Are there a variety of asset classes that provide ample diversification?
  • Account fees and underlying mutual funds fees. Most state programs have comparable asset-based expense ratios, but there are a few outliers.
  • Program features. For example, do you prefer a plan that offers a debit card? Or an online portal that tracks and categorizes transactions?

In Closing

A 529 ABLE account is not a substitute for a Special Needs Trust, but may be used in combination with one. Exclusion from supplemental security income calculation and its tax-deferred growth make the 529 ABLE an effective tool for saving for large purchases and growing a safety net. If the housing benefit comes to fruition, it will be a good way to fund those costs without jeopardizing benefits. Another benefit of using a 529 ABLE account to fund immediate living expenses may be to afford a person with a disability more autonomy in managing their money while limiting downside.

To learn more, speak with your financial or special needs advisor about what best fits your needs.

Allison Donaldson

Allison joined HTG in 2013. As an advisor, she works with clients on comprehensive financial plans and building suitable investment portfolios. She is also an integral part of the firm’s marketing team.

Allison is a CERTIFIED FINANCIAL PLANNER™ practitioner and a graduate of Hamilton College and New York University’s Stern School of Business. Allison has three sons, two of whom are out of college and financially responsible. She’s still working on the youngest.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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