Thanks to a tax law passed last month, consumers eligible to open an ABLE account will be free to select a plan sponsored by any state, rather than being restricted to their home state’s plan. The change will make it possible for people across the country to start an ABLE account as soon as the first state program begins. Experts expect there to be competition among states to attract out-of-state residents to their ABLE programs, which could result in lower fees and better investment options for consumers.
About 35 states have passed legislation to sponsor ABLE programs and it is thought that many programs will begin later this year. Officials in Nebraska, Virginia, and Florida say they plan to make ABLE accounts available in 2016.
Now that these programs can attract contributions from other states’ residents, experts say it is unclear whether all states that passed legislation will set up their own plans. Some may put their programs on hold and reassess once the initial ABLE plans are operating to see whether the market is big enough for additional players. Other states may opt to subcontract with another state or join a multi-state consortium to achieve economies of scale to reduce investment costs and account fees.
Some experts say families who want to maximize their contributions to these accounts should set one up in 2016, even if there are relatively few plans to choose from. This is because annual contributions are limited to $14,000 a year per beneficiary.
Families may want to wait until the end of 2016 to open an account so they have more options to choose from. They should keep an eye on the offerings from other states that enter the market. If they find a plan with lower fees or better investment options, they can initiate a tax-free rollover of their assets from one state plan to another.
While out of state plans may offer some benefits, it is thought that many states may offer a state tax break for using a home-state plan. States that currently offer one include Oregon, Iowa, Missouri, Montana, Nebraska, New York, and Wisconsin.
If maintaining SSI benefits, which are suspended once a person’s assets reach $100,000, isn’t a concern, a family may want to shop for a state plan that allows them to set aside the most money possible. On average, ABLE programs cap the balance at $300,000 per person, but some states are planning to cap the balance as high as $480,000.