After a decade of lobbying Congress, advocates for people with disabilities and special needs are abuzz about new tax-advantaged savings accounts established by law under the ABLE Act (it stands for “Achieving a Better Life Experience.”) But reactions are lukewarm from advisors who concentrate on the community of the handicapped and people with mental or psychological disabilities.

“The special needs community is desperate for tools we can use,” says Cynthia Haddad, a director at Special Needs Financial Planning, a division of Winchester, Mass.-based Shepherd Financial Partners. “Emotionally, this is very exciting. Will we let our clients know they can open up an account? Absolutely. Will we encourage them to hurry up and try to fund them? No. We’ll work on a case-by-case basis and look at the abilities and needs of the families we’re working with.”

Passed in December 2014, the ABLE Act establishes a “529A” plan—modeled on 529 education savings plans—that allows tax-free growth and disbursements for families whose members have disabilities or other special needs.

“The law is going to allow parents to have an account in a special needs person’s name,” says H. Mark Friese, senior vice president at the Washington, D.C.-based Menick-Friese Group of Merrill Lynch. “A lot of families are going to treat it like a checking account, which isn’t necessarily a bad thing.”

For approximately 6 million disabled Americans, ABLE accounts may provide dignity. Means testing for Medicaid and the Supplemental Security Income programs limit individuals with disabilities to $2,000 in assets. If that total is exceeded, they lose their benefits.

“People with disabilities cannot save for themselves, but not all of them are unemployable,” says John Nadworny, another director at Special Needs Financial Planning. “If individuals can’t save money in their own bank accounts because of this $2,000 asset tax, they’re almost forced into dependence.”

ABLE accounts, like special needs trusts, shelter assets from Medicaid’s calculations. Families can save up to $14,000 annually, the current gift exclusion amount, and accrue a total of $100,000 before federal benefits are affected. Unlike most special needs trusts, the accounts are controlled by the beneficiary.

Distributions for as-yet-undefined qualified disability expenses, including education, transportation, health care, training, financial management, employment and certain housing costs, are tax-free. If ABLE funds are disbursed for non-qualified expenses, they’re subject to a 10 percent tax.

Unlike education 529s, where account holders report qualified expenses when filing their taxes, the ABLE Act asks states to make that determination, which could require another level of bureaucracy.

“That leads to another problem: I think there will be a lot of very small accounts,” says Stuart Flaum, managing director of New York-based Special Needs Family Planning. “With all of the requirements for reporting, they’re going to be expensive to maintain.”

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