ABLE accounts: A tax-free way for disabled students to save for college

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For parents of children with disabilities, there exists something called an Achieving a Better Life Experience (ABLE) account that’s a godsend.

Read more: Best 529 plans to help pay for college

ABLE accounts explained

Signed into law in December 2015, the ABLE Act offers a way for the parents of disabled children to save money for college and other expenses à la a 529 plan.

Just like with 529 plans, ABLE accounts are administered by the states and you can participate in any state’s plan regardless of where you live. You may, however, get a tax benefit for participating in your state’s plan.

To qualify for participation, your child needs to have a diagnosable disability before age 26 that is expected to last 12 consecutive months or longer. Your child must also be receiving SSI and/or SSDI.

Participating in an ABLE plan allows you to save money tax-free and spend it tax-free on your child’s qualified educational expenses, such as tuition, housing, transportation, job training and more.

Annual contribution limits for 2017 are set at $14,000, which is the amount of the annual gift tax exclusion that lets you give money to anyone tax-free for any reason.

Setting the bar at $14,000 for the year effectively removes the barriers that existed before. Previously, a disabled person risked losing out on government programs if their monthly income exceeded $700 or they had savings and other assets valued at more than $2,000.

Certain states will cap lifetime ABLE contributions at $300,000, according to SavingforCollege.com. But there’s an earlier mile marker to take note of before you reach that goal; when your child’s ABLE account balance is $100,000, he or she can longer receive SSI benefits.

If you’ve already saved money for your child in a traditional 529 plan prior to a disability diagnosis, you may be able to roll that money into an ABLE account if your child has a disability that manifests after they’re well into their school years, such as autism.

Here’s a list of states with ABLE plans, courtesy of SavingforCollege.com:

State Plan Name Residency Requirement State Tax Deduction Total Asset-Based Expense Ratio Debit or Purchasing Card?
Alabama Enable Savings Plan Alabama NO NO 0.50%-0.56% YES
Alaska Alaska ABLE Plan NO NO 0.34%-0.38% NO
Florida ABLE United YES NO 0.035%-0.29% NO
Illinois Illinois ABLE NO NO 0.34%-0.38% Spring 2017
Iowa IAble Plan NO $3,239 0.34%-0.38% NO
Kansas Kansas ABLE Savings Plan NO NO 0.34%-0.38% Spring 2017
Kentucky STABLE Kentucky YES NO 0.19%-0.60% YES
Michigan MiABLE NO $5,000/$10,000 0.50%-0.78% YES
Minnesota Minnesota ABLE Plan NO NO 0.34%-0.38% Spring 2017
Nebraska Enable Savings Plan NO $10,000* 0.50%-0.56% YES
Nevada ABLE Nevada NO NO 0.34%-0.38% Spring 2017
North Carolina NC ABLE NO NO 0.34%-0.38% 03/31/2017
Ohio Stable Account NO $2,000 0.19%-0.60% YES
Oregon Oregon ABLE Savings Plan YES $2,310/$4,620** 0.30%-0.38% YES
Oregon ABLE for ALL Savings Plan NO $2,310/$4,620** 0.30%-0.38% YES
Pennsylvania PA ABLE NO NO 0.34%-0.38% YES
Rhode Island RI’s ABLE NO NO 0.34%-0.38% Spring 2017
Tennessee ABLE TN NO NO 0.35%-0.62% NO
Vermont Vermont ABLE NO NO 0.19%-0.60%
Virginia ABLEnow NO $2,000 0.37%-0.40% YES

Click here for more info on ABLE accounts from the Social Security Administration.

Read more: 9 things most people forget about when buying disability insurance

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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