The new tax law now permits money from a 529 plan to be rolled over into an ABLE account for children who have special needs, according to Kiplinger’s recent article, “How to Use College Savings to Benefit Children with Special Needs.”
This year, a person can roll over up to $15,000, which includes any rollovers and new contributions to the ABLE account. But if you’ve already put some money into a child’s ABLE account in 2018, the contributions will decrease the amount you can roll over this year.
To transfer a larger balance from a 529 to an ABLE, you can spread your rollovers over several years. You can also roll over the money from any state’s 529 into any other state’s ABLE. However, you can only have an ABLE in one state at a time. A rollover is only allowed if the ABLE account beneficiary is the same as the 529 beneficiary or a “family member” of the 529 beneficiary. The “family member” definition is a bit different for 529s and for ABLEs, and the states are working on the details.
In fact, because the rollover provision is so new, many states don’t yet have forms to make the transfer automatically.
Moving money from a 529 to an ABLE can be very helpful for families that started saving for a child’s college in a 529, but aren’t sure if the child will go to college because of a disability. By rolling over money from the 529 to the ABLE, a family can use it tax-free at any time for a wide range of qualified expenses to help a child with special needs maintain or improve his health, independence and quality of life. These expenses include education, housing, transportation, living expenses, employment training, assistive technology, legal fees and personal support services.
The money in the account also doesn’t affect eligibility for most government disability benefits, and up to $100,000 doesn’t count toward the $2,000 asset limit for Supplemental Security Income Benefits.
To qualify for an ABLE account, beneficiaries can be any age, provided they developed a qualifying disability before age 26. They also must meet the disability requirements of either Supplemental Security Income or Social Security Disability Insurance. They’re automatically eligible, if they started receiving those benefits before age 26. Alternatively, they must submit a “disability certification” from a physician confirming that they meet the functional disability criteria.
Thirty states and the District of Columbia now offer ABLE accounts, and more are coming. Most states’ ABLE plans are open to people who live in any state, although some give tax deductions if you contribute to your own state’s plan. When deciding where to open an account, compare investment options, fees, and the minimum initial contribution.
Reference: Kiplinger (January 30, 2018) “How to Use College Savings to Benefit Children with Special Needs”