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Raising a family often presents financial challenges. That’s especially true for parents of kids with special needs. But families with a disabled child now have a special, tax-advantaged savings plan that can help meet those extra expenses. We’ll tell you about that account today on MoneyWise. 529-ABLE ACCOUNTS The plan is called a 529-ABLE or 529-A savings plan, and it’s a huge help for families caring for a member with special needs. Surprisingly, most families and individuals with special needs aren’t taking advantage of 529-A plans. Many parents aren’t even aware that these accounts even exist. And those who do know about them still have a lot of questions about how they work. We talk about the 529 education savings plan a lot on the program, and the 529-A plan is nearly identical. Contributions aren’t tax-deductible, but they’re allowed to grow tax-deferred. Then, when you withdraw money from the account for qualified expenses, that money is not taxed. Both plans are established by the states, and in most cases, the same state agency will administer both programs. The tax benefits are identical. Contributions to a 529A account are made with after-tax dollars and are limited to $16,000 a year (in 2022). You can actually contribute more than that, but you’ll have to file IRS Form 709 for reporting gifts. Earnings on those funds are tax-deferred and distributions are tax free for qualified expenses. The IRS refers to these as qualified disability expenses, or QDEs.A QDE is any expense related to the account owner’s blindness or disability that assists them in maintaining their health, independence or quality of life. These would include money spent for education, housing, transportation, job training, assistive technology, health care, and financial management. In short, any expensethat the 529-A beneficiary might have as a result of being disabled. You should keep receipts for all disability related spending, but some ABLE programs also have ways to track your spending online. It’s a good idea to keep a record of how each expense is related to the disability and how it helped the beneficiary. This could come in handy if you’re audited by the IRS. If the money is used for non-qualified expenses, it’s taxed at ordinary income rates and is subject to a 10-percent penalty just like the education savings plan. Now, how do the 529 and 529-A plans differ? A major distinction is eligibility. For the 529-A, the beneficiary must meet the Social Security Administration’s definition of disabled. In very simple terms, that would be something that prevents the person from being able to earn a living. Another key difference is that there’s an age limit for setting up a 529-A plan: 26. The beneficiary must be diagnosed with a qualifying disability before that age. And unlike the education savings version, there can only be one 529-A savings account per beneficiary, and all qualified spending must be within the beneficiary’s state of residence. That’s very different from the 529 plan, where multiple accounts are allowed, you can choose a plan from any state, and spend the money for school in any state. So there are some restrictions with the 529-A plan. But those limits aren’t insurmountable, especially compared to the benefits of the program. In addition to the tax benefits, the beneficiary is still eligible for federal and state aid for the disabled. On the federal level, that aid could be Supplemental Security Income or Medicaid. And states may provide additional benefits. The beneficiary is only denied those benefits if the balance in the 529-A account exceeds $100,000. But even then, the suspension isn’t permanent. Once the balance falls below that amount, the beneficiary is again eligible for aid. Now, it would be great if every family with a disabled member could open a 529-A account, but unfortunately not every state offers one. There are still a few hold outs, so you have to check if your state has a plan. But if you’re caring for a special needs person and your state has a plan, you need to make the most of it. You want to make sure the disability is diagnosed before age 26, and you want to contribute as much as you can every year up to the limit. You also need to get very familiar with the list of qualified expenses so you can take maximum advantage of the plan. You can go toIRS.govfor more information on that. LISTENER QUESTIONS On today’s program, Rob also answers listener questions: ●When does it make sense to pull money out of the stock market and make your investments more conservative? ●What questions should you ask when trying to find the CPA/financial advisor? 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