On December 19, 2014, President Obama signed into law the ABLE Act, which allows families of special needs children to set-up a tax-free savings account for their special needs child.
Being hailed as a “major victory for the disability community”, the ABLE Act will provide an opportunity for families to put away tax-free savings for their special needs child, ensuring future financial security – an often worrisome part of raising a child with special needs.
There are 58 Million individuals with disabilities living in the U.S. This is the first time in history that our government has formally recognized the extra financial costs associated with caring for a special needs child.
Read more below and on the National Disability Institute site to learn how this may be an avenue to obtain some financial peace of mind for your family.
What is the ABLE Act?
ABLE stands for Achieving a Better Life Experience, and it was initially introduced on the House floor in 2006. After several rounds of political debate, the House and Senate agreed and overwhelmingly passed the bill on December 17, 2014. President Obama signed it into law just two days later. It will go into effect near the end of 2015, once the Department of Treasury drafts guidelines for state implementation.
Money Talks: The Financial Future of Special Needs Children
Many special needs children continue to live with their families well into adulthood. This means that parents must pick up the life-long tab for a child that may never be able to sustain themselves financially. The ABLE Act lessens that financial burden by allowing families to create a tax-exempt savings account (different from the commonly used Special Needs Trust or Pooled Income Trust) for their significantly disabled child from the age of onset until they turn 26 years old.
Yearly maximum contributions of $14,000 are allowed with the total lifetime amount subject to the state education related 529 plan cap. Some states cap maximum savings accounts at $300,000, depending on whether the child and family are recipients of state aid (Medicaid, Medi-Cal, SSI).
Regardless of the amount, it will be tax-free and can be used for daily living and special needs expenses, which can add up rather quickly.
- Employment Training and Support,
- Assistive Technology,
- Personal Support Services,
- Health Care Expenses,
- Financial Management,
- Administrative services, and
- Other expenses, which will be further described in regulations to be developed in 2015 by the Treasury Department.
Qualifications and Eligibility
There are several qualifications that must be met to obtain eligibility. A few of the highlights include:
- Individual must have a significant disability, which could qualify for, but does not have to be receiving, SSI, being one of “significant functional limitations”
- 1 ABLE Account per eligible individual
- $14,000 per year maximum, adjusted for inflation, capped according to state education related 529 accounts (varies according to state)
- Start account at the age of disability onset until the individual turns 26 years old.
Learn More about whether you qualify to set up an ABLE Account on behalf of your special needs child: Doug Baker, Special Needs Financial Advisor, The National Disability Institute, and The Disability Scoop
Christine Terry, J.D., is a Special Education Advocate & Founder of Terry Tutors. She created the One Wraparound Service for The Struggling Student, which includes Academic, Behavior, Special Education Advocacy, and School Placement services. Want to Know More? Head on over to TerryTutors.com.