Tax-Free Savings Accounts for the Disabled

By Christina A. Samuels — June 13, 2008 1 min read
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Savings plans for college education, also known as“529 plans,” have been grown tremendously in popularity since they were created in 1996. In those plans, parents can sock away money in different investments to grow free from federal and state income tax until a child is ready to attend college. The money can then be used for tuition and other expenses.

A group of congressional leaders wants to expand this tax-free account concept to youth with disabilities, in order to pay for qualified expenses.

The Washington Post had a favorable editorial in the paper today about the plans currently working their way through Congress. Senators Robert Casey (D-Pa.) and Orrin Hatch (R-Utah) have cosponsored a bill, and Sen. Chris Dodd (D-Conn.) also has a proposal. Rep. Ander Crenshaw, a Republican from Florida, has a similar bill working in the House.

It sounds like a great idea; to receive federal benefits, people with disabilities have to impoverish themselves. Distributions under these accounts would not count toward an individual’s income limits, so should not affect receipt of Medicaid and Supplemental Security Income.

The Post editorial brings up the one pitfall: this shouldn’t be used a some kind of tax shelter for the wealthy. But I know of so many families who are worried about what will happen to their children once they reach adulthood. Giving people with disabilities the same kind of assistance the country is already giving college-bound students seems quite reasonable.

A version of this news article first appeared in the On Special Education blog.