Many disabled people receive governmental benefits, such as Medicaid or Supplemental Security Income (SSI). These benefits often come with low resource eligibility levels, which make it very difficult for a disabled person to save money for necessary expenses. If a disabled person has assets in excess of allowable levels, they risk losing their governmental benefits.
To help deal with this difficulty, the federal government has allowed states to establish 529 Able or 529A accounts. The New York State Comptroller is currently setting up the NY 529 Able program and accounts are expected to be available soon.
What is the purpose of 529 Able accounts? These accounts will allow disabled people to save money in an account that will not affect their eligibility for governmental benefits.
Are 529 Able accounts like 529 college savings accounts? They are similar in that they allow the account funds to grow tax free, and if they are used for a qualified expense, the funds can be withdrawn tax free. Unlike 529 college savings accounts, a disabled person can only have one 529 Able account.
Who can set up a 529 Able account? The account can be set up by the disabled person, a parent or legal guardian of the disabled person, or a power of attorney agent of the disabled person.
Are there age limits for the disabled person? The disabled person must have become disabled before the age of 26.
Can other people put money in the account? Yes, anyone can deposit money into the 529 Able account of a disabled person.
What kind of things can the account funds pay for? The account funds must be used for “qualified disability expenses” (QDEs), which include a variety of things, such as expenses related to education, health and wellness, housing, transportation, employment support, and assistive technologies.
What happens if the account funds are not used for QDEs? If used for expenses other than QDEs, the earnings portion of the withdrawal will be treated as taxable income for state and federal purposes and be subject to a 10 percent federal income tax penalty.
Is there a limit to how much you can invest? You can invest up to $14,000/year into a 529 Able account. Recipients of SSI can only have $100,000 in resources when adding the value of the 529 Able account to their other resources.
How do the investments work? Similar to college savings 529 accounts, 529 Able accounts have a range of investment options available. You can invest aggressively for growth or you can be more conservative and seek to protect principal. No matter what option you choose, you can change your selection twice a year.
Do other states have 529 Able accounts? Yes, and New York residents are not restricted just to New York 529 Able accounts. In addition, if you have a 529 Able account in one state, you can roll it over to a 529 Able account in another state.
What happens when the account holder dies? The account can be used to pay outstanding qualified disability expenses (including funeral expenses), but after those are satisfied, the balance must be used to pay off any Medicaid lien against the account holder. If any funds are available after that, they can be paid to the account holder’s estate.
New York 529 Able accounts provide a new tool when planning for the financial needs of a disabled person. Other options, such as a Supplemental Needs Trust (SNT), may be preferable given the overall circumstances of the individual. In order to develop a plan that best serves the needs of the disabled person, it is advisable to contact an experienced estate planning professional.