CindyBy Cindy Szymanski, CFP®, Financial Advisor

Effective November 1, 2016, Michigan becomes the fifth state to make available 529 Able accounts, or 529A accounts, under the Achieving a Better Life Experience Act of 2014, also known as the ABLE Act. This law allows individuals with disabilities to contribute up to $100,000 to a 529A account established for a designated beneficiary to pay for qualified disability expenses without losing other financial disability benefits. A disabled individual generally can’t have more than $2,000 in savings or other assets, which made it very difficult for families to save for on-going, everyday expenses.

To qualify for a 529 Able account, the individual must have become blind or disabled before the age of 26 and is currently entitled to Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), or can get a disability certification under US Treasury rules.

Under the IRS code 529, the ABLE Act is similar to the 529 College Savings Plan in many ways. Here is how it works – a qualifying individual can have only one 529A account, however anyone can contribute to it. The ABLE account will be owned by the disabled individual, who will have access to the account funds (unless a parent or legal guardian makes decisions for that person). Annual contributions up to $5,000 for single and $10,000 for married filing joint can be deducted on Michigan state income tax returns.

The maximum annual contribution is limited to the annual gift-tax exclusion, which is currently at $14,000. Like the college plans, the maximum contribution limit is $500,000, however, only the first $100,000 in an ABLE account is not used as a resource when determining eligibility for benefits such as SSI and Medicaid. So, it is important that the ABLE account balance does not exceed $100,000 for this reason.

The 529A account can be used for qualifying disability expenses for the disabled individual. As listed on www.miable.org, these expenses include: education; housing; transportation; employment training and support; assistive technology and personal support services; health – prevention and wellness; financial management and administrative services; legal fees; expenses for oversight and monitoring; funeral and burial expenses; and any other expenses that may be identified from time to time in the future guidance published in the Internal Revenue Bulletin. As long as distributions are used for the aforementioned qualified expenses, distributions will not be subject to taxes and/or a 10% penalty.

A 529A account is not meant to replace a Special Needs Trust, but rather to complement it. The 529A account is more cost-effective, and gives the individual broader spending power with easy account access. Starting in February 2017, Michigan is expected to give account owners access to a “MiABLE” debit card, for even more convenient account access.

To open an account, go to www.miable.org, where you can print a form or open the account on-line. Account funding can start with as little as $25. You can set up a link to your checking account and fund electronically, or simply mail in a check. As the account accumulates in value, funds can be invested in 5 asset allocation models ranging from aggressive to conservative. There is also an FDIC-insured bank savings account option.

A 529 Able account has been needed for quite some time. It gives qualifying disabled individuals more independence in saving and in paying for their everyday needs. Kudos to Michigan for being one of the front runners in establishing a plan for Michiganders!