Saving for Education for Students with Disabilities
Just as there is no “typical” student with an Individualized Education Program (IEP), there is no one-size-fits-all path after high school.
Some students may attend a traditional four-year university with plans for graduate school or beyond. Others may pursue a two-year degree or certificate program at a technical or community college. Registered apprenticeship programs have also expanded beyond the skilled trades to include fields such as healthcare and information technology. Some students may transition directly into adulthood after high school, focusing more on independent living and daily responsibilities.
Whatever path a student chooses, a 529 college savings plan can offer families flexible tools to support their child’s future, including unique benefits for students with disabilities.
What is a 529 College Savings Plan?
Named for section 529 of the IRS tax code, 529 college savings plans are offered by states to help families save and pay for (the sometimes significant) cost of future education. Unlike a standard savings account, funds in a 529 account can be invested, and any earnings grow tax deferred. Withdrawals are free from state and federal taxes when used for qualified higher education expenses. Many states offer both direct-sold 529 plans, which can be opened by families directly online, and advisor-sold 529 plans, available through registered investment advisors. In some states, contributions to 529 plans qualify for state income tax deductions or credits, so be sure to review the 529 plans and laws from your state.
Flexible 529 Uses for All Types of Students
Despite the name, qualified higher education expenses extend beyond traditional college costs. On the federal level, recent expansions now allow qualified withdrawals from 529 plans for certain K-12 expenses, up to $20,000 per year per student. These include K–12 tuition, books and curricular materials, tutoring (with certain limits), and educational therapies for students with disabilities—such as occupational, behavioral, physical, and speech-language therapies—when provided by a licensed or accredited practitioner. Learn more about these federal K-12 expansions in H.R.1, Sections 70413 & 70414. Families should note that not all states treat K–12 withdrawals as state income tax-free, so it is important to check state-specific tax rules.
After high school, 529 funds can be used for a wide range of postsecondary education expenses, including tuition, housing and meal costs for students enrolled at least half time, books, computers, and more. Eligible post-secondary programs include degree-seeking programs at colleges, community colleges, trade or technical schools, and universities. Expanded uses include professional credentialing, certificate, and registered apprenticeship programs (check with your home state if a program is considered eligible for state income tax purposes). Students are not limited to attending school in their home state, as funds saved in a 529 plan can be used at an accredited institution anywhere in the United States, and at some eligible educational institutions abroad.
An Option for Students with Disabilities: Rollover to ABLE Accounts
An ABLE (Achieving a Better Life Experience) account is a savings and/or investment option for people with disabilities who qualify. If a family has funds saved in a 529 college savings plan, and they later find that an ABLE account would better serve their child’s needs, they can easily rollover funds from a 529 to an ABLE account. Upcoming and recorded webinars about ABLE accounts can be found at ABLE Today: https://www.abletoday.org/intro
529 Plans for Every Future
Families often benefit most from 529 college savings plans when they begin saving early and contribute consistently over time. By opening a 529 college savings plan for a child, you can create a hopeful vision of the future, with savings that could add up to a meaningful sum by the time the child reaches adulthood. Whatever future path a student eventually takes, funds saved in a 529 plan can help them pursue the opportunities that fit them best.
About the author: Chelsea Wunnicke is a College Savings Program Finance Officer with the State of Wisconsin, Department of Financial Institutions, which administers the advisor-sold Tomorrow’s Scholar and direct-sold Edvest 529plans. Edvest has been helping families save for education since 1997.