Twenty-five years ago, the Americans with Disabilities Act was signed into law, guaranteeing disabled Americans – people with mental, physical, or emotional disabilities – equal opportunity in employment, transportation, government service and public accommodations. The most recent statistics show about one-in-four Americans has a disability. Many are children with special needs.

The vehicle is not available yet, but the new 529 Able Accounts are anticipated to make their debut in 2016. The federal government has authorized states to create 529 Able Accounts – tax-advantaged accounts for disabled individuals. So far, 40 states and the District of Columbia have either passed laws making the accounts possible or have legislation pending. These accounts are similar in structure to the 529 college savings accounts which have been in existence for more than 10 years.

Able accounts are for disabled beneficiaries

When 529 Able Accounts become available, parents, grandparents and others may contribute up to $14,000 each year per beneficiary. The accounts must be set up to benefit a beneficiary who became disabled before reaching age 26. Any earnings in the account grow tax-deferred, and distributions are tax-free as long as they are used to pay qualified expenses for the beneficiary. These may include:

• Education;
• Housing;
• Transportation;
• Employment training and support;
• Assistive technology and personal support services;
• Health care;
• Financial management;
• Legal fees;
• Funeral and burial expenses.

Similar to 529 college savings plans, distributions for non-qualified expenses may be subject to income taxes and a 10 percent penalty. In addition, the designated beneficiary can be changed to another family member with a qualifying disability. However, any assets remaining in a 529 Able account after the death of the beneficiary may be forfeited to repay benefits received after the account was opened.

Exempt from public benefits limits

One of the most significant benefits of 529 Able accounts is money held in the account is exempt from public benefit limits. If you have a family member who suffers from a disability, you’re probably familiar with the eligibility limits imposed on individuals who receive public benefits. For example, a disabled individual who receives Medicaid or SSI income benefits can have no more than $2,000 in assets. Just one 529 Able Account can be established per beneficiary, and it must be set up through the program established and maintained by his or her state.

How does a 529 Able account compare to a special-needs trust?

Both special needs trusts and 529 Able Accounts are established for the benefit of a disabled person and can provide financial assistance without jeopardizing public benefits. However, each offers some distinct advantages. For instance, special needs trusts:

• Have no contribution or accumulation limits;

• Can be established for beneficiaries of any age, no matter the age they became disabled;

• Have no benefits payback requirement when the beneficiary dies.

On the other hand, 529 Able Accounts are expected to offer tax advantages. Distributions from 529 Able Accounts for qualified expenses are tax-free, while distributions from special needs trusts may be taxable to beneficiaries.

Able Accounts may offer cost benefits, too. It is unclear at this point exactly what the fees for opening, maintaining and investing a 529 Able Account will be since each state will have its own program and costs. If program fees are similar to those of 529 college savings plans, 10-year costs on a $10,000 investment could range from zero to $2,277, plus an annual account fee ranging from zero to $25.

Likewise, the cost of setting up a special needs trust is variable. It depends on your attorney’s fees, your trustee costs and the complexity of the trust. Typically, setting up a trust costs a few thousand dollars and requires annual tax return filings.

Making sure a child with special needs has the financial support he or she may need is a complex, challenging and highly personal pursuit. Many families rely on a team of professionals, including financial advisors, trust attorneys and others to help ensure they have an effective plan in place.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.