There’s a new 529 plan on the block, but don’t get confused – this one is isn’t for college planning. The 529(a) account provides a way to save for the costs of caring for those with special needs without risking government assistance. These accounts were made possible by Congress’s 2014 signing of the ABLE Act and are modeled after 529 college savings plans, though there are some key differences.
Who Is Eligible For A 529(a) Account?
Families can open a 529(a) account for anyone that meets the Social Security Administration’s definition of disabled or blind. Per their definition, someone is considered disabled if they are not be able to work for pay because of their condition and the condition is expected to last at least 12 months or result in death. One caveat is that the beneficiary of the account must have been diagnosed with their qualifying disability or the cause of the disability before age 26.
How Are 529(a) Accounts Set Up?
Like their college-savings counterparts, 529(a) accounts are established by individual states, but since 529(a) accounts are still relatively new, not all states are currently offering them. A beneficiary can only have one account, but thankfully they are allowed to open it with any state. By researching researching the options available from each state, you will get an idea of what investment choices are offered within each plan and find one that works best for you.
Who Owns The 529(a) Account?
The disabled person is the account owner, unless they have a parent or guardian making their decisions. The goal of this feature is for disabled account owners to be as independent as possible.
Are There Limits To 529(a) Account Contributions And Withdrawals?
Contributions to a 529(a) plan are capped at $14,000 per beneficiary per year. While contributions are made with after-tax dollars, all investment growth is tax-free. When used to pay for qualified expenses, withdrawals are tax-free as well. Qualified expenses include things such as housing, transportation, healthcare, wellness, and education. Any other withdrawals are subject to a 10% penalty and earnings are taxed at normal income tax rates.
How Does A 529(a) Plan Affect Government Aid?
As long as the amount held in the 529(a) account does not exceed $100,000, it will have no impact on a disabled person’s ability to qualify for federal and state aid, such as Supplemental Security Income and Medicaid. If the balance surpasses the limit, government benefits will be suspended. However, they can be reinstated again as soon as the account balance drops below the $100,000 limit once again.
An important thing to note is that at the account owner’s death, the state can seek repayment from the 529(a) account for the cost of care covered by Medicaid.
How Can Mason & Associates Help?
Though they are not a perfect solution because of their contribution restrictions, 529(a) accounts are an excellent opportunity for the disabled. Their benefits include low maintenance costs, tax advantages, and the ability to save up to $100,000 without jeopardizing access to government aid. If you have a special needs child or loved one, opening a 529(a) plan might be beneficial.
As with most financial decisions, it is wise to consult with an experienced professional when considering a 529(a) plan. At Mason & Associates, we can help you evaluate the needs of your disabled loved one and decide what makes the most financial sense for your entire family. With California’s 529(a) plan set to open for business this fall, now is the time to act. Contact our office today by calling us at (323) 254-3072 and we can answer any questions you have regarding 529(a) plans.
About Mason & Associates, Inc.
Mason & Associates, Inc. was founded in 1989, specializing in Life Planning for individuals, families and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.
As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way towards achieving your objectives.
Our responsibility does not end there. As you encounter bumps in the road, changes in goals or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals such as your attorney and your CPA to be sure all of your legal and financial needs are aligned.