Financial advisers who specialize in helping families care for children with special needs see the newly available ABLE investment accounts as an important savings vehicle for parents to provide day-to-day and long-term care of a disabled child.
Four different ABLE plans will be available by this Friday, and more are being introduced by other states before the end of this year.
Money in these Achieving a Better Life Experience accounts, which can be opened for anyone who has been diagnosed as disabled by age 26, grows tax free and can be used for everything from medicine to equipment that helps with mobility.
“This is an issue near and dear to my heart, as I have a three-and-a-half-year-old daughter, Ella, who has Down Syndrome,” said Kevin Yurko, an adviser with Wealth Strategies & Management. “I will be talking to clients about deploying these accounts and looking to open one for Ella.”
Advisers envision ABLE accounts working in tandem with supplemental needs trusts, the most common vehicle families use today to save for an individual with disabilities without endangering their right to government benefits.
Ohio launched the first ABLE plan earlier this month, Tennessee followed a couple weeks later. Nebraska's plan will be available starting Thursday, and Florida's accounts will be offered starting Friday.
A person doesn't have to live in the state offering the accounts to open one, but only one ABLE account can be opened per special needs child (though multiple people can contribute to the one account).
A maximum of $14,000 can be saved in the account each year without jeopardizing eligibility for government benefits, most notably, Supplemental Security Income. Traditionally if someone is able to save for themselves they risk being disqualified for SSI and Medicaid if they have more than $2,000 in their name.
Mary Anne Ehlert, chief executive of Ehlert Financial Group, said she will recommend clients open ABLE plans after they have a trust created.
“If they think an ABLE plan is going to replace a trust, that's a mistake,” she said. “When we quantify how much they'll need to save for the future, you won't be able to save enough in that account.”
There are some quirks advisers warn parents about with the ABLE plans.
First, if the plan contains more than $100,000, SSI benefits will be suspended until some of the funds are drawn down. That limit doesn't apply to Medicaid benefits, Ms. Ehlert said.
Also, the ABLE plans can't be funded with life insurance, a common practice with supplemental needs trusts, which are often set up to provide care for a disabled child if something happens to the parents or guardians, Mr. Yurko said.
ABLE plans were approved by Congress in December 2014 under section 529A of the Internal Revenue Service code, and are treated for tax purposes similarly to 529 college savings plans.†