Let's talk about something extremely uncomfortable; disabled and blind children. I have been talking a lot to my female co-workers during lunch. I was surprised at how many working mothers had disabled children and didn't know about the 529 ABLE (529A) account. In fact, I was surprised at how many people didn’t know about the 529A in general.
In 2014, Obama signed the 529 Achieving a Better Life Experience (ABLE). As you may have guessed, this is a modified version of the 529 plan. The 529A is brand new and I am not sure how many states currently have the infrastructure for enrollment. I know Pennsylvania and Maryland were debating but I am sure many will soon have their own version. Before we start let’s look at why a 529A was even needed in the first place.
A disabled person who makes $700 a month or has $2000 in total assets is not allowed to claim Medicaid and some parts of Social Security disability. The government is basically telling disabled people to remain poor or suffer the consequences. One way of avoiding the $700/month and $2000 assets rule is to create an irrevocable trust that costs an average of $2,000-5,000 to set up…which no poor person or middle class family can ever afford.
The 529A account is basically the same as a traditional 529. You deposit your after taxed monies into the 529A and choose what funds you to contribute (in some states). The monies grow tax-free like a Roth IRA. The only difference is the 529A can pay for a wide array of cost instead of the traditional 529 college tuition. The 529A can be withdrawn to pay for qualified education, housing, transportation, health care, employment training, death services and legal fees.
If withdrawn for non-qualified expenses, the earnings are subjected to regular income and 10% penalty.
1. The 529A grows tax free.
2. Funds can be used for a wide array of expenses. Anywhere from living expenses to funeral fees.
3. Avoid the $700/month and $2000/asset rule.
1. Disability before 26. The child must have been disabled before 26. If the beneficiary becomes disabled on his/her 26th birthday, you cannot open a 529A. I am sure this will be litigated.
2. ONE (1) account per disabled person. Unlike the traditional 529 where multiple accounts can be created per student, the 529A is one per disabled person. There is no limit on who can contribute. Your mom, dad, grandparents, aunt, and uncle can all contribute to the same 529A account but there is a limit of $14,000 per year.
3. If the 529A balance exceeds $100,000, the beneficiary will no longer receive Supplementary Social Security. But they can still receive Medicaid.
4. Once the balance is below $100,000; supplementary social security will resume.
5. Beneficiary must sign up in their “home-state” 529A plan. If the “home-state” does not have a plan, the beneficiary may sign up to their current state’s plan if both states agree.
6. All contributed monies are irrevocable. Meaning that once the beneficiary dies, the leftover funds will go to their estate and used to pay off Medicaid expenses. It does not go back to the contributor.
7. Only a limited number of states currently offer the 529A. I don’t know which one. You might want to contact your state’s current 529 point of contact and see if they have the 529A available.
8. States may add their own limitations like many already do to the traditional 529.
So there you have it. The brand new out of the box 529A. I kept everything extremely vague since this is a new law and nobody has sued yet. I am sure this law will be muddier 10 years from now. Having disabled or blind children is not something we want to talk or think about. But as investors, we have the responsibility to know all the laws and use it in our favor. Ignorance of the law is no excuse.
Below is a list of articles on the 529A
What are your thoughts on the new 529A? I just wrote this since it was interesting how such a significant law was passed and nobody paid any attention to it. Back to work. See you at the end of the month. My next buy will probably be $1000 worth of KO in my Loyal3 account or I might just the old shotgun method.
DISCLAIMER: I am not an attorney or expert on this subject. This is only something I recently learned about and wanted to pass it on. All information included here is for entertainment purposes only. You should not rely upon anything I wrote above. Please contact a qualified expert for any questions on this matter. I’m just some guy on the Interweb.