529 Flexibility

Many of us are familiar with the benefits of establishing a 529 plan for our children and/or grandchildren in hopes of having a way to fund the costs of college in the future.  The new tax law has increased the flexibility of the 529 plan.  This is really great news, especially for folks who have funded a 529 plan for a child, later to learn that the child has developed a disability and will likely not be going to college.  Not to fret! There are a few more options now available.  

One really great feature of a 529 plan is that the money in the plan does not count as an asset for the person with the disability, so it has no effect on his or her eligibility for government benefits. 

In lieu of paying for college tuition, dorm fees, books, etc., here are some additional thoughts: 

1. Maybe college is not in the cards, but a trade school is?  Welding, mechanics, cosmetology, getting a CDL, and various other types of “trade” education are now qualified expenses.  
2. K-12 allowed expenses, including textbooks, workbooks, digital learning tools and other devices, tutoring services, online education options, and “educational therapies,” which appears to have an expanding definition, are expanded to $20,000 per year. (starting in 2026)
3. Money can move from the 529 plan to an IABLE account (which is also a type of 529 plan) without penalty or tax consequences.  From there, money can be used to pay for nearly anything the person might want or need, without tax or penalty.  (There is an annual limit to how much an IABLE account can receive in a calendar year, and if the account grows to over $100,000, there will be a Medicaid issue.)

Additional things to keep in mind:  

1. In some cases, the beneficiary must meet the legal definition of disabled.
2. There are specific rules associated with each different category of expense, and you should visit with a knowledgeable advisor before taking a distribution from a 529 plan. 
3. Money left in a 529 plan at the death of the beneficiary is NOT subject to estate recovery for government benefits paid on behalf of a person with a disability and CAN be transferred to another qualified beneficiary.   Win Win! 
4. Money left in an IABLE account cannot be withdrawn and distributed to anyone else.  Generally, it stays in the plan to benefit others who have a disability.