Families that include children with disabilities can now use tax-deferred savings accounts to save for long-term goals like college, medical expenses and future care through the Achieving Better Life Experience (ABLE) Act, which was signed into law by President Barack Obama on Friday, Dec. 19. The bill was approved by both the House and Senate and saw bipartisan support, pushed through with the sponsorship of both Sen. Bob Casey, D-Pa., and Sen. Richard Burr, R-N.C.
“It’s utterly unacceptable that our current laws doom a child born with a disability to a lifetime of poverty and dependence,” Sen. Burr said. “The ABLE Act will take the first critical step in ending this injustice.”Plan for Your FutureSponsors of
The tax-deferred savings account accessed through the ABLE Act is similar to the 529 college savings vehicles many Americans use to save for college costs.
ABLE Act Keeps Families of Disabled From Having to Sacrifice Savings for Benefits
In a statement, Sen. Casey spoke of the financial difficulties families with disabled children experience, while being advised not to save for fear of losing access to vital benefits.
“Faced with a lifetime of extraordinary expenses, parents are told not to save or put assets in their child’s name,” Sen. Casey said.
Because many public health and benefits are issued based on needs, families with disabled children or those who are disabled themselves avoid saving too much money, as this growth in assets can make them ineligible for many crucial programs that help cover costs.
Before the ABLE Act, parents were often advised to set up complicated trusts to care for their children without putting money in their children’s names; this often cut off their access to crucial public services and benefits, according to Sen. Burr. The threat of losing out on benefits removed the incentive to save money, even though those extra funds would provide a needed safety net for those with disabilities.
“The ABLE Act changes this unfair situation by creating tax-advantaged plans for disability-related incentives, and by allowing Americans with disabilities to save without losing eligibility for government programs,” Sen. Casey said.
How ABLE Act Tax-Deferred Savings Accounts Work
The millions of Americans with disabilities “have struggled to keep up with the rising cost of housing, transportation and medical assistance,” Sen. Casey said.
“A growing number of Americans with disabilities are outliving their parents, and are forced to rely on government assistance when family support disappears. This is partly because Americans with disabilities have not had the same incentives to save that other Americans enjoy.”
The ABLE Act amends Section 529 of the Internal Revenue Service Code to allow use of tax-free savings accounts for individuals with disabilities and their families.
The ABLE Act amends the IRS Code Section 529 to create a new tax-free savings account for individuals with disabilities and their families. Money in these ABLE accounts will not be counted against eligibility for federal programs that benefit those with disabilities, an important step in creating additional financial security.
The ABLE savings accounts function similarly to 529 college savings accounts. Money can be saved in the account tax free, and later withdrawn for qualified expenses. The list of qualified expenses is quite broad for the ABLE Act accounts and covers a range of needs, including medical and dental care, education, housing, transportation, support programs and assistive technology, among others, according to the National Down Syndrome Society.
Photo credit: Official U.S. Navy Page