Kathleen Oberneder Kathleen Oberneder

The Achieving a Better Life Experience (ABLE) Act of 2014, which allows people with severe disabilities to maintain savings accounts of more than $2,000 without losing public benefits, is arguably the most significant legislation for the disabled in a generation.

Further, President Donald Trump’s 2017 tax overhaul expanded the  program.

So why haven’t more financial advisors embraced this opportunity to help families set up tax-advantaged 529 ABLE accounts? Only 20,653 of the state-sponsored plans, with $98.6 million in assets, have been established as of March, according to the consultants Strategic Insight.

But some FAs could hardly wait. As soon as the 529 ABLE was introduced, Kathleen Oberneder, special needs advisor with Crescendo Wealth Management, in Wisconsin, began helping her adult clients with disabilities and parents of special needs children create these accounts.

In an interview with ThinkAdvisor, the ABLE Act expert explains the accounts’ strengths and drawbacks and why she advocates for them in speaking engagements.

Oberneder, 43, has focused on special needs planning since the birth of a daughter with Down syndrome seven years ago and is the founder of a Special Needs Advisory Board in the county where she practices.

The primary reason more advisors haven’t involved themselves with 529 ABLE plans — for people whose disability onset has occurred before age 26 — is that the plans have been direct-sold. It took four years for the first advisor-sold plan to surface: On July 13 of this year, Capital Groups’ American Funds launched ABLEAmerica, the only advisor-sold plan, according to the firm. It is available nationwide.

About 40 states and Washington, D.C., have ABLE account programs. In most states, residency is not a requirement to open one.

Indeed, there is no shortage of confusion and fear when it comes to 529 ABLE accounts; and certainly some financial advisors aren’t even aware of them.

As soon as the ABLE act was passed, advisor Oberneder joined Crescendo from Northwestern Mutual insurance company and ever since has striven “to be on top of every detail about ABLE accounts,” she says.

Providing for tax-free investment growth and distributions, most plans offer mutual funds from Vanguard, Dimensional Fund Advisors, Fidelity and BlackRock, among others.

On the downside: Annual contributions are limited to $15,000. But the accounts can hold up to $100,000 — even more when the owner is earning job income — and still allow Supplemental Security Income (SSI) and Medicaid benefits to be received.

That’s important because another big reason for reluctance to open the accounts is fear they will result in owners losing those government benefits.

Before the 529 ABLE program, SSI and Medicaid recipients were permitted to have only $2,000 in their own name — or else be deprived of the two public benefits. The only way to have more money at their disposal was through creation of a special needs trust.

Capital’s ABLEAmerica plan is sponsored and administered by Virginia 529. “Our advisors are pleased to have this as a viable option for people living with disabilities … Working with a financial advisor can help them and their families understand their choices and determine if an ABLE account makes sense,” says a Capital spokesperson in a statement.

ThinkAdvisor recently interviewed Oberneder, on the phone from her office in Grafton, near Milwaukee. Wisconsin, incidentally, does not have its own 529 ABLE program. “When the ABLE act was passed,” says the advisor, who was a clinical speech language pathologist early in her career, “the Wisconsin legislature said, ‘Let’s save $4 million and not create these and just give a greater tax benefit to Wisconsin.’”

Here are excerpts from our conversation:

THINKADVISOR: How significant is the 529 ABLE Plan?

KATHLEEN OBERNEDER: It’s one of the biggest pieces of legislation for the disabled community since passage of the Americans with Disabilities Act [ADA] in [1990]. But it isn’t perfect — you can contribute only $15,000 a year.

What’s the best thing about the ABLE 529?

It’s [essentially] having your own bank account. Some states [even] provide a debit card for the individual to use. That makes parents nervous, but there are state plans with safeguards to prevent disabled individuals from blowing the money and being taken advantage of.

Do you think part of the reason more people aren’t opening ABLE accounts is that it’s daunting to set them up without a financial advisor’s help?

Yes. How the accounts work and what to choose are overwhelming for people. Not enough families who have a child with a disability are doing financial planning in general. There isn’t enough focus by the financial advisory industry on people with disabilities. But nearly one in five families are impacted by a disability, so there’s a tremendous market for special needs planning.

Why, then, aren’t more FAs recommending ABLE plans?

If advisors aren’t compensated for work, there’s typically not much motivation to get involved. But now, with American Funds’ ABLE plan [introduced July 13], they can get compensated.  It’s the first advisor-sold ABLE plan. The advisor gets paid on the basis of share class, and there’s the traditional upfront sales charge, 12b-1 fee and trail.

What are the tax benefits of a 529 ABLE account?

The money put in is after-tax dollars, like a Roth IRA; so it grows tax-deferred. It’s tax-free distribution.

Do you have an ABLE account for your 7-year-old daughter who has Down syndrome?

Yes, I’m using it to save for Emily’s future with the thought that she could attend college. But before that, I can take money out to pay for her to go to camp.

Not every state has an ABLE plan. But, in most states, there’s no residency requirement to use their plan. What else is important when considering various programs?

Florida and Oklahoma are two states in which the plans are for residents only. When I look at a program, it’s not just the investments, custodian, fees and performance but how well they track the recordkeeping — the money coming in and going out. It’s ultimately the ABLE owner’s responsibility to keep track of the payments they make for qualified expenses.

Does having a 529 ABLE account mean that a special needs trust isn’t needed?

No. ABLE accounts aren’t meant to replace special needs trusts. The key is that a special needs trust and an ABLE account work together in collaboration, whether a private trust or a pooled trust, which certain states have [usually] for lower account balances. The 529 ABLE isn’t a solution for an inheritance. But you can contribute part of one and set up an independent trust for the rest.

What’s the biggest financial improvement that ABLE plans have brought to people with disabilities? The ABLE National Resource Center says: “To remain eligible for … public benefits, an individual must remain poor.”

Before, if you had a special needs trust, for example, you couldn’t have cash of more than $2,000 in an account of your own. But most people needed a trust because government benefits, such as Supplemental Security Income [SSI], are at the poverty level.

What’s the chief shortcoming of the 529 ABLE?

SSI has a cap to it. So if someone has an ABLE account and the balance goes to $110,000, it’s possible that their SSI would be suspended for the period that it’s over the $100,000 limit.  But if you have, say, $300,000 in an ABLE account and aren’t receiving SSI, there’s no problem.

What’s a real-life example of using an 529 ABLE?

I have a special needs trust for Emily. When she’s older [and were to live independently], if I pay her rent, the amount of money she’d get from SSI ordinarily would be reduced. But if I take the rent distributions from the trust and put them in her ABLE account, ABLE makes the rent payments, and her SSI isn’t decreased.

Any limitations concerning Medicaid?

The ABLE plan doesn’t put a cap on Medicaid. [However], ABLE is an estate-recovery account; that is, it has a Medicaid payback requirement — and Medicaid is first in line. So when the 529 ABLE owner dies with money left in their account, whatever was received from the government from the day the account was opened must be paid back to Medicaid.

That probably also contributes to people’s reluctance to open a 529 ABLE.

Yes. There’s fear on the part of parents that they’re going to put money into an ABLE account for their child, and then Medicaid is going to get it.

How limited are the investments available with the ABLE?

Pretty limited, which is a good thing. But you don’t have to invest the money. You can also just put it into an FDIC–backed savings account so that it’s not exposed to the market.

How might the account be used in that way?

Some of my adult clients who are disabled use it for money coming in and going out. They just need to have savings and assets that aren’t impacted by public benefits. The ABLE account allows that. So they use it like a typical savings account. I’m invested in the market because I’m using an 529 ABLE for Emily as an accumulation vehicle.

Can anyone at all open an ABLE account for someone who has a qualifying disability?

It needs to be a parent, legal guardian or another with power of attorney. If the person is over the age of majority [without cognitive disability], they can open it themselves or have an authorized legal representative set it up. The disabled individual is the account’s owner. That’s uniquely different from a traditional 529 College Savings Plan.

ABLE plans were expanded as part of President Trump’s tax-cut package. I imagine that’s news to most people.

The ABLE to Work Act was thrown in at the 11th hour: If the disabled person has a job, it allows for additional money above $15,000 a year to be put into their ABLE account because they’re employed and earning income.

How else did the 2017 tax package enhance the ABLE program?

The ABLE Financial Planning Act lets people roll over a traditional 529 plan into an ABLE account. That would help if, say, a college savings account was set up when a child was born; but then later they were diagnosed with an intellectual disability. Now that money can be rolled over to an ABLE account.

It’s surprising that the 529 ABLE was expanded within the Trump tax overhaul. What’s the background?

There was agreement on both sides of the aisle that this was a really good thing. The lobbying by the National Down Syndrome Society and the National Disability Institute was really effective. Rep. Cathy McMorris Rodgers [R-Wash.] has a son with Down syndrome and sponsored the two bills. She was integral to getting them passed.

How would you like to see ABLE plans improved further?

Right now, to qualify, the disability must have occurred before age 26. People are trying to increase that to 46 to [cover] people, for example, [diagnosed with] MS; veterans; and individuals who have [disabling] accidents when they’re older than 26.

What are some approvable expenses for which the 529 ABLE account holder can use the money?

The [government] made the [range of] expenses very broad. They wanted flexibility because there are so many things that aren’t covered by public benefits; that is, those [expenditures] have to be a medical necessity, as with Medicaid. The ABLE account covers education, housing, transportation, job training, financial advisors’ fees, attorneys’ fees, computers, iPads, smart phones, pre-burial expenses and equine therapy for individuals with autism, among other expenses.

Recordkeeping is essential, I assume.

Yes, you need to keep the receipts because the expenses are tax-deferred and tax-beneficial: If you get audited by the IRS, you have to show documentation to prove the accounts are [being used] legally.

As an advisor, you didn’t focus on special needs planning till after the birth of Emily, the youngest of three daughters with your husband Dan. Correct?

Yes. Right after she was born, I looked locally, regionally and nationally for financial advisors that specialize in special needs. But then I realized I could [handle the financial matters] myself. And [professionally] I decided to create a service model the way I think people with special needs should be treated.

How?

Parents who have special needs kids have a heightened level of fear and concern: “What am I going to do if I die tomorrow? How will my child be taken care of?” And so it becomes very complicated for them. You can’t just be selling them an insurance policy. That’s how I felt when I was working at Northwestern Mutual [right before joining Crescendo]: To make money, I had to sell somebody insurance. But what if that wasn’t the best solution for them? It was a conflict of interest for me.

Are you aware of other firms besides Capital ready to offer advisor-sold ABLE plans?

I think there’s going to be a lot of waiting and seeing. I’m curious about how the growth will continue over the next two to five years. I believe there are billions of dollars in typical college savings accounts. But it will be a long time to get there with ABLE 529s because of the contribution limitations. Investment firms make money the more assets that are sold.

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