By: Dr K C Gupta

It may seem strange that disability 529-ABLE or 529A accounts reside under the same framework as college 529 accounts. That’s because many aspects such as state sponsorships, contribution & withdrawal restrictions, & related plan mechanisms are similar. Unfortunately, this may be a reason why many are not familiar with disability 529A.

Acronyms used: ABLE = Achieving Better Life Experience Act (2014); SSA = Social Security Administration; SSI = Supplemental Security Income (from SSA); SSDI = Social Security Disability Income (from SSA).

Disability 529A are state-sponsored programs that can be used to support people with disabilities who were diagnosed when young. Some states don’t offer or have inactive 529A (ID, ND, SD, WI). However, any state 529A can be used (if open to nonresidents), but several states offer tax incentives to their residents. Earnings grow tax-deferred & withdrawals are tax-free for qualified disability related expenses. The 529A accounts are much easier to set up than the complex & expensive special-needs trusts, although the latter may also be needed.
ELIGIBILITY. Beneficiary (& owner) must be diagnosed with long-term disability before the age of 26 (Secure 2.0, 2022 raised the age to 46 starting from 2026), but disability 529A benefits can continue for lifetime. Only one disability 529A is allowed per beneficiary/owner (unlike multiple college 529s), but transfer to another 529A is allowed & the old 529A must be closed
ASAP.

529A account can be opened by the disabled adult, or by an authorized individual (family member, guardian, an individual with POA) for the disabled beneficiary/owner who is a minor or an adult who cannot manage his own affairs. There can also be 529A successors for final residual funds – an eligible sibling, if any, is preferred because transfer to a non-sibling successor will be nonqualified & taxes will become due.

REQUIREMENTS include doctor certification of disability or getting SSA-SSI &/or SSA-SSDI benefits. However, the burden of recordkeeping is on the account owner; the disability 529A program only requires personal self-certification of eligibility at the time of application, & annual self-recertification of eligibility if the disability is not of permanent nature.

The IRS (on audit) &/or SSA (for SSA- SSI or SSDI benefits) may require more detailed information about 529A, so keep good contemporary records about disability. Beneficiary remains eligible for MEDICAID (a great benefit of 529A), but the SSA-SSI would be suspended if the 529A balance exceeds a certain amount ($100K in 2025); it would resume once the 529A balance is within the limit. After the death of beneficiary, states may recoup some of the Medicaid assistance they provided from the 529A residual balance.

QUALIFIED EXPENSES include healthcare, financial management, housing, food, transportation, assistive equipment, education, job training & support, legal, funeral, burial, etc.
A 10% penalty & income tax on earnings apply for nonqualified expenses. Keep good records of qualified expenses in case asked by the IRA &/or SSA; the 529A program does not require or monitor this information. Withdrawals from 529A can be made online, through plan forms, or by plan checkbook or debit card.

CONTRIBUTIONS up to the annual gift exclusion are allowed ($19K in 2025), plus some contributions from the earned income of the beneficiary (if the beneficiary is not participating in workplace retirement plans 401k/403b). States have limits on the total 529A contributions (but not on the 529A account balance).

Limited ROLLOVER of college 529 into disability 529A of the same beneficiary is also possible.
For example, college 529 may have been set up for a newborn who is later diagnosed with long- term disability before the age of 26 (before age 46 from 2026), then the college 529 (limited to expenses for higher education) may be rolled over gradually into disability 529A (more flexible for expenses including for education). Basically, the sum of new contributions & rollovers from 529 into 529A must be within the annual gift exclusion.

As both college 529 & disability 529A are allowed for the same beneficiary, those may coexist & there may be some advantages to having both. It should be possible to split the annual gift exclusion between 529 & 529A but directing all contributions to 529A should be preferred.
For more information, see https://ybbpersonalfinance.proboards.com/