The relatively new 529 ABLE account can be one of the most useful savings vehicles for people with disabilities, but they have yet to pick up steam with financial advisers.
ABLE accounts, which stand for Achieving a Better Life Experience, have attracted more than $500 million in assets among more than 75,000 savers since 2016, according to data from a report late last month from AKF Consulting. And while 43 states and the District of Columbia have collaborated to provide those accounts, there is but one adviser-sold program in the country: the Virginia ABLEAmerica, which is distributed by American Funds. That program, which launched in mid-2018, represents less than 1,000 accounts, the AKF report notes.
“We think there is an opportunity for advisers on this,” AKF managing director Andrea Feirstein said. Currently, annual contribution limits are $15,000 per account, with one maximum account per beneficiary. But Congress could change that in the future in order to bring the accounts more in line with 529 college saving accounts, which allow multiple accounts per beneficiary and higher gift limits, Feirstein said.
Under the 2017 Tax Cuts and Jobs Act, ABLE accounts for working people who are not contributing to a retirement account can have an additional $12,760 in annual contributions, until 2026, when the law sunsets, the report noted.
“Advisers don’t see a big dollar play right now, but my view is that these are accounts that are in the best interest of your client. If you have a wealthier client who has someone with disabilities in his or her family, odds are you’re doing a special needs trust,” she said. ABLE does not have income limits for eligibility.
“There’s just no reason not to also do an ABLE account,” she said. “It’s just socking away $15,000 that you don’t ever have to think about. You get the power of the tax-deferred compounding.”
But there is a drawback to most of the ABLE programs, she noted. Only 11 states do not have Medicaid recapture provisions, meaning that most will attempt to recoup Medicaid funds advanced to an eligible beneficiary after they die.
The Virginia adviser-sold ABLE program is available to eligible savers in any state, though most states have their own direct-sold programs, and 16 of those have state tax incentives for contributions, according to AKF. By comparison, 35 states have their own tax breaks associated with their college savings plans.
Further, ABLE eligibility is limited to beneficiaries who experience a disability before age 26. Some legislators have proposed expanding that age to 46, which would increase the number of people eligible for ABLE accounts from an estimated 8 million to 14 million, Feirstein said.
Virginia’s College America plan, which is also distributed by American Funds’ parent Capital Group, represented $70.7 billion across 2.4 million accounts nationally, according to AKF.
That state’s ABLE plan shows a big difference in account sizes for people who work with advisers. That program has an average account size of about $11,600, compared with the national direct-sold account average of less than $7,100, the report stated.
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