Current law states that all individuals with disability onset before reaching age 26 can qualify for the 529ABLE. This means, if you were involved in an accident at age 27 that left you disabled you’d not be able to establish an ABLE account to provide tax-advantaged support. But soon that will change. A subsection of the new SECURE 2.0 ruling, called the ABLE Age Adjustment Act, will begin in 2026 raising the age of disability onset to 46. This is a big deal because the current age limit has excluded as many as 6 million individuals, of which 1 million are our veterans.1
If you’re unfamiliar with the 529ABLE you should take a moment to really get to know the plan as it’s beneficial in so many ways. As stated in my blog post from 5/26/2022, the 529ABLE account is a tax-advantaged savings program where funds can be saved by, and used for, someone with a disability, even if they receive state and federal aid due to their disability. Even if you don’t qualify for aid it is still a great program due to its long-term tax benefits and possible tax-deductible contributions. The plan is similar to a Roth IRA in that deposits are made with already-taxed dollars that grow tax-free while invested in the account. Some states even offer tax deductions on contributions, so be sure to check that out (read more here on the state of WI’s tax deduction rules). Once it’s time to make a withdrawal the funds will come out tax-free as long as they are used for a qualified disability expense. What’s more is, if you’re on state or federal aid you can have as much as $100,000 invested in a 529ABLE and still qualify for needs-based benefits such as SSI, rather than being stuck with the $2,000 asset limit!
As with all programs, fees are charged to cover the program’s administrative costs. Another benefit to the age adjustment is the potential increase in the volume of open accounts. Fees are set based on overall plan size so if there are more dollars invested in a provider's 529ABLE plan then it's likely that fees could drop. But regardless of whether or not your plan’s fees have been, or will be, adjusted ABLE owners will need to weigh the fees against the myriad of tax benefits given to ABLE holders to see if the pros outweigh the fees charged. To a certain degree, we've found the fees to be less concerning when there's a significant length of time before the account will be used because there's more time for the money to grow in the account.
Again, if your disability began between ages 26 and 46 you will need to wait until 2026 to open an ABLE account. But that means you have time to do your research on the plans to see which features you like best and to make a point to follow the plans with those features over time as there are will likely be updates and/or enhancements over time. As with most investments that have annual contribution limitations, it's helpful to start early because the limitations make it harder to accumulate a meaningful account balance in a short time frame.
Speaking of contribution limits, the amounts change by year to year. For instance, it's 2023 and the contribution limit is $17,000, whereas last year it was $16,000, and the year prior it was $15,000. Between now and when the age adjustment takes place there are sure to be many changes within the plans, including the chance that there will be even more plan options available than there are currently. That's why partnering with an advisor who keeps current with disability financial planning will ensure you're fully up-to-date with all the changes.
Sources:
1Conroy, Brynne. ABLE Age Adjustment Act. Savingforcollege.com 5 May 2023.
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