Protecting Our Disabled Children

| April 13, 2021

We all have an obligation to make life as healthy, fulfilling, and safe as possible for those who may have physical or mental conditions that make life especially challenging. Fortunately, we have tools available to us to improve opportunities for the disabled.

For many years, those with the means to hire an attorney have relied upon special-needs trusts to provide benefits for their handicapped children. These trusts are specifically designed to provide only those things that will not disallow their children access to government benefits. We shall discuss these arrangements in the future. Today we wish to focus on several relatively new methods that can provide for our loved ones who have special needs.

The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs (ABLE accounts) for eligible people with disabilities (designated beneficiaries). These 529A accounts can be used tax free by designated beneficiaries to pay for qualified disability expenses. The Tax Cuts and Jobs Act of 2017 increased the amount of contributions allowed to an ABLE account and adds special rules.*

The designated beneficiary can claim a “saver’s credit’ for contributions to the account. The credit is available for those age 18 or older, who are not students, and who are not claimed as a dependent on another person’s return. Additionally, funds from 529 college plans, in limited amounts, can be rolled over to the ABLE account of the designated beneficiary or his or her family member. The annual limit is the gift tax exclusion amount, currently $15,000. Beyond the annual limit, the designated beneficiary who works may also contribute his or her compensation up to the poverty line amount for a one-person household. There are restrictions for those who benefit from employer contributions to qualified retirement plans and deferred compensation plans. This is among the reasons why we are compelled to include tax preparation as part of our services. 

If you need more information about setting up an ABLE plan for a loved one, or want to find out how you can maximize the benefit of your existing 529 plan, please give us a call.