Should you consider 529 plan or ABLE account for your child with a disability?

Parents want to do what is best for your child. Of course, you want to provide the support your children will need now and in the future. That might include the idea of paying for your child’s education in the future. 

There are several different types of accounts that you could consider but I will focus on two popular types of accounts at this time which are 529 plan and ABLE account. This information is intended for those who have child(ren) with a disability, as the social security administration defines disability, which includes deafness.

You can choose either 529 plan or ABLE account to save and invest for your child’s education. I will expand on each for you to consider which might be a better fit for your child with a disability.

What is a 529 Plan? It is a tax-advantaged savings plan designed to help pay for education. It covers K to 12 and college costs. The money in the account grows tax-deferred until it is withdrawn. As long as the money is used for qualified education expenses, it is tax-free. For K-12 private school cost, the limit is $10,000 tax-free withdrawals. If the withdrawal is not for qualified education costs, you must pay income tax plus a 10% penalty. 529 plans are available to anyone regardless of disability.

ABLE accounts are another tax-advantaged investment but only available to those that were already disabled before turning age 26. You can open an ABLE account at any age, but only if your disability happened already before you turned 26. If you become disabled later in life, you can not use ABLE.

What is ABLE account? The Achieving a Better Life Experience Act of 2014 is a tax-advantaged savings programs for people with disabilities. The difference between a college 529 plan and an ABLE account is that ABLE is designed to help pay for education, housing, food, transportation, employment training and support, health care expenses, financial management and more.  Any withdrawals from an ABLE account that are used to cover support and maintenance for a person with a disability is tax-free. 529 plans are only tax-free for education. 

There are no federal tax deductions for contributions to either a 529 or ABLE account but some States do offer state income tax deductions. Consult with your tax advisor. 

Discuss with your financial advisor which type of account is right for you or your children and grandchildren.