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FDIC Consumer News

Spring 2015

A New Way to Save for Children With Disabilities

Parents and guardians of children with disabilities have a new, tax-advantaged savings option to help pay for expenses such as education, housing, transportation and health care not covered by insurance.

Under the Achieving a Better Life Experience Act (the ABLE Act), which President Obama signed into law in December 2014, certain accounts for individuals with special needs will grow tax-free if the money is used for qualified expenses. To be eligible for an account, the beneficiary can be any age, but the disabilities must have been documented before age 26.

The law directs the U. S. Treasury Department to issue regulations or other guidance to implement the ABLE Act. The new accounts could become available on a state-by-state basis later this year. For more information, one place to start is the Internal Revenue Service.

The new accounts are somewhat similar to "529 plans" for college savings that are administered by individual state governments and they provide the same favorable tax treatment. But unlike the education savings plans, if your state does not have its own program for ABLE accounts (also called "529A" accounts), it may contract with another state to provide them to its residents. You cannot obtain an ABLE account from just any state’s program.

Generally speaking, ABLE account investments and earnings also will not disqualify an eligible individual’s entitlement to federal benefits that are subject to income limits, such as Medicaid.

The new accounts offer an alternative to "special-needs trusts," which also can help families save for disabled children without risking federal assistance. While annual contributions to ABLE accounts are limited (unlike special-needs trusts, which have no dollar limits), they may have certain tax advantages. Please consult with your tax adviser.

How will deposits in an ABLE account be covered by federal insurance? "Funds owned by an eligible disabled individual and deposited at an insured institution will be insured up to $250,000 as single-ownership funds along with any other individually owned deposits the person may have at the same FDIC-insured institution," said Martin Becker, Chief of the FDIC's Deposit Insurance Section. He also noted that deposits in special-needs trust accounts are separately insured up to $250,000 in a different insurance category for irrevocable trust accounts.

Stay tuned to FDIC Consumer News for future updates. To learn more about ABLE and special-needs accounts, contact your attorney or financial adviser. For more help or guidance on the deposit insurance of this new account or any other accounts you have at an insured bank, you can speak with an expert by calling 1-877-ASK-FDIC (1-877-275-3342).