Governor Pence has signed legislation allowing Indiana to create the ABLE savings account for people with disabilities. These accounts have favorable tax benefits, but also some drawbacks. Regardless, this could be a game-changer for special needs individuals!

President Obama signed the Achieving a Better Life Experience (ABLE) Act into law in December 2014. The bill included a provision to establish the 529 ABLE (529A) account. This is a savings vehicle for disabled people that offers the same tax-free growth available in 529 college savings plans.  However, a 529A account can be used for any disability related expenditure. Funds from the account would serve as a supplement to private insurance and public benefits. With the Governor’s signature, residents of Indiana are now eligible to participate.

Who is Eligible for the 529A account?

Minors or adults who are blind or have been diagnosed with a severe physical or mental disability before age 26 are eligible to establish an account. To qualify, the individual must also be entitled to Supplemental Security Income (SSI) through the Social Security Administration. There is proposed legislation to raise the age limit to 46 to include those individuals that have contracted debilitating diseases later in life, such as Lou Gehrig’s disease.

How does the 529A account work?

Each state can establish its own 529A plan which would be available to residents in any state. 529A accounts are funded with after-tax dollars, invested in options available through the state’s plan, and distributed tax-free for qualifying expenses.

According to the IRS, qualifying expenses include those that relate to the beneficiary’s disability and help with maintaining or improving health, independence, and quality of life. Some examples include: housing, education, transportation, employment training and support, assistive technology and personal support services. Non-qualifying distributions from the 529A account are subject to ordinary income tax plus a 10 percent penalty on the earnings portion of the distribution.

A disabled person can be the beneficiary of only one 529A account and must also be designated the account owner. Contributions to the account must be made in cash and cannot exceed $14,000 per year (tied to the annual gift exclusion amount). This $14,000 annual maximum is a combined total from all contribution sources. Any contributions that exceed the $14,000 annual limit will be subject to a 6 percent excess contribution penalty if not corrected in a timely manner.

Beware of Consequences

While the 529A program offers some real benefits, there are drawbacks that you need to be aware of:

SSI benefits will be forfeited if the 529A account value exceeds $102,000. Each state can establish its own maximum contribution amount, which could be as much as several hundred thousand dollars. However, if the account value exceeds the $102,000 limit, funding from SSI will be suspended until it falls back below that amount. 

Medicaid benefits will be reimbursed at death. Any funds remaining in the account at the beneficiary’s death must be used to repay the state for any Medicaid assistance received by the beneficiary after the account was created. Any funds remaining after repayment to Medicaid would go to the post-death beneficiary named on the account (income taxes would be owed on the earnings portion, but the 10 percent penalty is waived).

An existing 529A account can be rolled into another 529A account once per year. Legislation has been proposed that would allow a 529 college savings account to be rolled into a 529A account and vice versa. However, if this becomes an option, any rollover into the 529A account would be subject to the $14,000 annual contribution limit.

To date, over 30 states have passed legislation to enact the 529 ABLE plan. While no state has yet implemented the program, it is anticipated that plans will become available in late 2016.


Planning and caring for individuals with special needs can be complex. The 529A plan appears to be a wonderful option that will soon be available to assist with meeting their needs. As mentioned, it is important that this new vehicle be handled appropriately to avoid the loss of funding from state and federal aid programs. For this reason, it may be advisable to seek the counsel of a financial planner or other professional experienced in this area.

This article was contributed by Kathy Hower, CFP, a Wealth Advisor at Bedel Financial Consulting Inc.

Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment. Elaine’s book, "Advice You Never Asked For… But wished you had," is available on For more information, visit or email Elaine at

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