Paying for college is a tough task under the best of circumstances, and it’s one that only gets harder as time goes on. As the cost of tuition continues to climb, students from every walk of life find themselves searching for ways to cover this exorbitant expense, and those with special needs have more to worry about than most. In addition to the basic costs associated with higher education – tuition, books, computers, room and board – come the costs related to the bevy of support services many students rely on to address their unique challenges and earn a college education. As popular tools for covering college expenses, 529 plans are often the subject of consideration by the families of those with special needs, many of whom ask, “Can 529 plans be used for special needs?” To find out, keep reading as we address this important question.
Using a 529 Education Savings Plan for Special Needs Expenses
In all, there are three different types of 529 plans with varying levels of usefulness to students with special needs. Prepaid tuition plans – the most rigid option in terms of what counts as a qualified distribution – can generally be used for tuition and mandatory fees… and that’s about it. By comparison, the more common education savings plan allows for much greater flexibility in terms of how funds are spent, so it’s often a better option for students with special needs.
There’s actually a long list of things on which you can spend the funds in your 529 education savings plan, which includes the obvious – tuition and fees – along with some things you might not expect, such as housing, computers, books, and school supplies. With the passage of the 2017 tax bill, the list grew to include up to $10,000 in tuition and fees at private K-12 schools, plus vocational schools and apprenticeships, too. These accounts can even help with student loans, though only up to $10,000 per person.
Included in the coverage you get from an education savings plan is the cost of special needs equipment. Basically, if it’s needed to make college attendance possible for a student, it’s covered under 529 plans. However, certain expenses – such as transportation costs – may not be covered in all circumstances, so be sure to check with your plan administrator before taking money from the account, even for something you assume would be covered.
How ABLE (529A) Accounts Can Help with Special Needs
Although education savings plans can help to cover many of the special needs-related expenses college students face, they don’t always offer the kind of comprehensive coverage necessary to support other aspects of a person’s life. For those whose special needs qualify as a disability, an ABLE account can offer greater financial support, and it can do so in a way that won’t limit a person’s income.
In practice, ABLE accounts work in much the same way as education savings plans: You put money into the account over time, which then grows via tax-free investments. Unlike other types of investment accounts, the first $100,000 in an ABLE account won’t impact your eligibility for Social Security payments, so you won’t have to worry about your income taking a hit because you invested in one of these plans.
In addition to covering all the same costs as an education savings plan, an ABLE account can be used for essential disability-related expenses like medical care, job training, housing, and financial management services. If you have a standard 529 plan, you can also roll over up to $15,000 per year into an ABLE account without incurring taxes or penalties.
To qualify for enrollment in a state’s ABLE program, a student with special needs must have been diagnosed with a disability before the age of 26, and the condition must be expected to persist for at least one full year. The student in question must also receive SSI or SSDI benefits or have a disability certification from a qualifying medical professional.
How to Use Your 529 Plan for Special Needs
Whatever kind of 529 plan you choose to help cover special needs costs, using the funds to pay for a qualified expense is easy. All you need to do is withdraw the funds from your account and put them toward an education-related cost – or a disability-related cost, with an ABLE account – by filing the appropriate form online or by using the free Sootchy app.
Ideally, you should make any distribution payable to the beneficiary of the plan or the educational institution they will be attending; if so, a copy of IRS Form 1099-Q will be sent to the beneficiary, who will include the information on the form with their usual tax return. As long as the expense qualifies as appropriate under the terms of your particular plan, you won’t need to worry about any additional tax liability, though it would be prudent to keep a record of every transaction, just in case of an audit.
Open a 529 Plan to Help Cover Special Needs Costs During College
The pressures of covering special needs-related expenses while away at college only adds to the financial strain many families deal with when paying for higher education, but 529 plans can help. These flexible, tax-free investment accounts can provide significant earnings over time to help make a college degree more affordable for special needs students and others seeking to better themselves through education. Learn more about the benefits of 529 plans or open one of your own today by downloading the free Sootchy app on your mobile device or visiting us online.
