Capital Group, which sponsors the American Funds brand of investment products, on Friday launched ABLEAmerica, a tax-advantaged savings plan for individuals with disabilities and their families. These accounts will be the first of the ABLE plans to be exclusively available through financial advisers.
The plan is a boon to individuals and families that prefer a personal touch to financial planning and to advisers who envision incorporating ABLE plans more seamlessly into special needs planning services.
"Usually the ABLE account is just one piece of the planning that a family is doing, so having all the information in one place would make the family's life easier," said Alexandria Nadworny, a wealth adviser at Special Needs Financial Planning, a practice within Shepherd Financial Partners.
Approximately 8 million Americans with disabilities are eligible for ABLE plans, according to the National Disability Institute. However, only 20,000 accounts have been opened across the country as of the end of the first quarter in 2018, according to the research firm Strategic Insight.
Capital Group created the savings program with administrator Virginia529, its partner in the nation's largest 529 college savings plan, CollegeAmerica. The pair launched that adviser-sold 529 plan in 2002 and it has assets of $64 billion.
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ABLEAmerica has an annual contribution limit of $15,000, which matches the annual gift tax exclusion. However, each account is subject to a $500,000 account maximum, after which no additional contributions will be accepted, though they can continue to accrue earnings. However, once the account reaches above $100,000, the beneficiary likely no longer will be eligible for public health and other benefits, advisers said.
The accounts can incorporate investments from six diversified American Funds' investment portfolios.
Created through the Achieving a Better Life Experience Act of 2014, ABLE savings accounts can be opened for any U.S. citizen or permanent resident who has been diagnosed as blind or disabled by age 26. Prior to the creation of this savings vehicle, individuals who put away more than $2000 were disqualified for disability benefits through Medicaid or Supplemental Security Income. ABLE gives families an option for savings that accumulates tax free.
"In the past, people would always suggest, 'Don't have any money in your child's name whatever you do, because that would disqualify your children for benefits,'" said Ms. Nadworny. "The ABLE accounts help you save for the future."
Because account owners of ABLE plans are also the beneficiaries, the savings accrued can only go to qualified disability expenses. If not, the earnings are subject to a 10% federal tax penalty, as well as federal and, if applicable, state income tax.
Nevertheless, the qualifications for disability expenses are generous and include basic living expenses, housing, health and wellness, transportation, education, employment training, assistive technology, financial management and more.
The flexibility makes it an attractive program to pair with other special needs planning, like a special needs trust. A special needs trust has no account maximum, but it's limited in use and works as an estate distribution tool.
Since 2014, 36 states and the District of Columbia have created State ABLE programs and 22 jurisdictions make their programs available to beneficiaries nationwide, according to Suniti Sarah Bal, director of public relations at The Arc of the United States, a nonprofit serving people with disabilities.