Middle-class parents of children with disabilities: There's a new low-cost, tax-advantaged way to save money on their behalf.

Low cost is the key idea here. ABLE accounts serve a purpose similar to the special-needs trusts often set up to help disabled or special-needs children without disqualifying them from government benefits.

ABLE accounts don't replace special-needs trusts. They are another option.

In December, President Obama signed the Achieving a Better Life Experience (ABLE) Act of 2014, which creates savings accounts for the disabled. Each state will set them up individually.

ABLE accounts will function much like 529 college-savings plans and even have a similar moniker, "529 A."

Accountants, trust attorneys, and industry experts say the new accounts will make it possible for disabled individuals to have assets without jeopardizing other kinds of financial assistance.

"If a disabled person earned more than $700 per month or had assets in excess of $2,000," says Kathryn Flynn of SavingforCollege.com, "they risked having to forfeit eligibility for government programs."

Until now, families got around the restrictions by spending thousands of dollars in legal fees to set up special-needs trusts, which remain popular.

The ABLE Act, Flynn says, has "created a way for families to adequately save for the future as a supplement to private insurance and public benefits."

ABLE accounts can pay for an exhaustive list of expenses, including custodial care, employment training, and assistive-technology devices such as power chairs, computers and communication devices, or a retrofitted vehicle.

Key features

There is a $100,000 limit to an ABLE account. Beyond that, the individual loses Supplemental Security Income (SSI) benefits.

Yearly contributions can be made up to the gift-tax-exclusion amount: $14,000 in 2014 and 2015, adjusted annually for inflation.

There are some key tax features, too, according to Isdaner & Co., a Bala Cynwyd accounting firm. You contribute money on an after-tax basis (contributions aren't deductible), but the account assets grow tax free. You withdraw funds tax-free, as well, as long as they are used to pay qualified expenses.

Only one account per beneficiary is permitted.

"If mom and dad set up an ABLE account, and grandparents set up a separate ABLE account, the second one won't qualify. You can only have one per beneficiary," says trusts and estates lawyer Trisha Hall, with Connolly, Gallagher in Wilmington.

Who's eligible for ABLE accounts? Only those who were younger than 26 at the onset of their disabilities. Older adults with Alzheimer's, for instance, don't qualify.

Account-holders must be eligible to receive SSI or Social Security Disability Insurance (SSDI), although they don't have to be receiving benefits.

The National Disability Institute estimates that about 5.8 million individuals and families meet the definition. The U.S. Treasury Department has yet to write regulations this year on the standard of proof and required medical documentation.

ABLE vs. trusts

Lawyers argue - perhaps naturally, given the legal fees involved - that the higher-cost special-needs trusts are better long-term vehicles for children with disabilities.

Gary Madeira, head of wealth management at Bryn Mawr Trust, says of the ABLE account: "It's a supplement to special-needs trusts, not a substitute."

With trusts, there's no limit to the amount of money family members can contribute. ABLE account contributions are restricted to $14,000 per family member per year. And there are no age restrictions on people who develop disabilities later in life.

There also is no Medicaid "payback."

With a trust set up and funded by a family member other than the disabled person, any money left after death can pass to family members. Money left in an ABLE account after death must be used first to repay the government for disability benefits received during the person's lifetime, says lawyer Rob Deschene of North Attleboro, Mass.

ABLE accounts are income-tax free. Typically, special-needs trusts also can be structured to eliminate or minimize the amount of income tax the trust will pay.

Final analysis? If you have significant financial assets, a special-needs trust makes more sense.

For families without a lot of money, ABLE accounts may be a more user-friendly way to save.

Investing in You: ABLE DETAILS

Someone qualifies as an ABLE account beneficiary if:

He or she is entitled to benefits based on blindness or disability under the Social Security Disability Insurance program, or SSI program, and the condition occurred before the date on which the individual turned 26.

Certification must include a copy of the individual's diagnosis relating to the impairment(s), signed by a licensed physician.

Qualified expenses include education; transportation; housing; health and wellness services; financial management and administrative services; legal fees; oversight and monitoring; funeral and burial expenses; and other expenses approved under Internal Revenue Service regulations.

SOURCE: Thomson ReutersEndText

215-854-2808 @erinarvedlund