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New tax-advantaged accounts will help families with special-needs children

Parents of children with special needs are getting a new way to save for their future.

ABLE accounts, which are modeled after the popular, state-sponsored 529 college savings plans, are making their debut this month, with Ohio, Tennessee and Nebraska opening plans for enrollment. They are tax-advantaged savings accounts for individuals with disabilities and their families.

Financial advisors and advocates for special-needs families say it is a welcome step. Congress, in a rare act of bipartisanship in 2014, passed the federal legislation that allowed states to create these accounts.

"For the first time, families have the ability to save tax free for a special-needs member, and we see them as a complementary tool," said financial advisor Mike Walther, founder and president of Oak Wealth Advisors.

Unlike special needs trusts, which can be expensive to set up and maintain, the money in ABLE accounts grows and can be withdrawn tax-free. The funds can be used for a variety of expenses, from transportation to job training to long-term health care, all without any limitations on the number of withdrawals.

Many disabled Americans rely on government benefits such as Supplemental Security Income or Medicaid, which are subject to those programs' asset limits that can be as low as $2,000.

One of the biggest advantages of ABLE accounts is that up to $100,000 is excluded when it comes to calculating whether a special needs person can receive government benefits. The accounts can help them save money to pay for other life expenses.

"Advocates for special needs families say it is a welcome step."

"Families can use an ABLE account much like a checking account as long as the money is going out for that family member with special needs," said Walther.

To be eligible, a beneficiary has to have been diagnosed with a qualifying disability by age 26. Currently, contributions can be made up to the annual IRS gift-tax exclusion amount of $14,000.

A designated beneficiary can only have one account at a time.

As with any investment, interested families need to consider the expenses, investment options and the ability to communicate with a plan before choosing one.

While you can enroll in any state's plan, some states are charging more for nonresidents, Walther said. However, as more states roll out their versions, experts expect increased competition to lead to lower fees.

ABLE accounts will level the playing field for those with disabilities, advocates of the program said. Many families will now finally have the peace of mind of being able to save for a loved one's future, said Chris Rodriguez, senior policy advisor for the National Disability Institute.

"Folks with disabilities have always wanted to be part of the American mainstream," he said, "and that includes the economic mainstream."