Savings Plans for the Disabled

(Image credit: Simon Bruty)

Stuart Spielman is senior policy adviser and counsel at Autism Speaks, a national advocacy group. We spoke with him about new savings accounts being introduced to offer tax advantages for people with disabilities. Here is an edited excerpt of our conversation.

KIPLINGER: A law enacted in December authorizes tax-advantaged savings accounts for people with disabilities. How will these ABLE (Achieving Better Life Experience) accounts work?

SPIELMAN: The structure will be similar to 529 college-savings plans. Anyone can establish an account for an eligible beneficiary. I could open one for my disabled son, for example, or a person with a disability could open one for herself. A beneficiary can only have one ABLE account. Contributions to the account are after-tax, but earnings and distributions from the accounts for qualified expenses won’t count as taxable income. Annual contributions can’t exceed the federal gift-tax exemption, currently $14,000, and the total account can’t exceed state-based limits for 529 accounts.

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Who qualifies for an account? A beneficiary has to have a disability that is present before age 26. The statutory definition of disability is “marked and severe” functional limitations. People who’ve met the disability standard for Supplemental Security Income (SSI) will qualify. There will also be a certification process defined by law. We’re talking about severe disabilities—conditions such as autism, Down syndrome or blindness—where future needs will be great.

What expenses will the accounts cover? Any number of things. These accounts are broader than college-savings plans because people with disabilities have such varied needs. The money can be used for educational expenses but also for assistive technology, transportation costs, specialized housing and job training. College-savings plans are of particular importance to people of a certain age, but disability is a lifespan issue.

How will the accounts work with other disability benefits? Assets in the accounts generally don’t count when determining eligibility for other programs, except that once you have more than $100,000 in the account, it can have an impact on SSI. This gives individuals a chance to provide for disability-related expenses without taking away the security of programs such as Medicaid and Social Security.

Will the accounts differ by state? Yes. You’re going to see some of the same creativity in the marketplace that we see now with 529 accounts, and the market will be very active.

When will these accounts be available? The law provides a six-month time frame. It’ll take time to develop the financial products, but we should have the accounts in 2015.

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage, authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.