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State launching tax-free savings plan for disabled residents

Melissa Reilly and Josh Komyerov, operations director for the Massachusetts Down Syndrome Congress, attended the announcement of the college savings plan at the statehouse.Jonathan Wiggs /Globe Staff

Disabled Massachusetts residents are about to get their own version of a college savings plan: a tax-free account that lets families set aside up to $14,000 a year for an array of expenses ranging from health care to education, without losing federal disability benefits.

It’s a national program some eight years in the works, and the culmination of a tireless effort by families to make their case to Congress. Advocates say the so-called ABLE account will not only help parents save money for children, but also will eliminate a kind of enforced poverty for millions of disabled people.

“The typical person is encouraged to save for their future,’’ said Maureen Gallagher, executive director of the nonprofit Massachusetts Down Syndrome Congress in Burlington. But until now, “there was no real savings mechanism for the average family to be able to do that for a disabled family member.”


The Achieving a Better Life Experience act, signed in 2014 by former president Barack Obama, paved the way for the new accounts. Governor Charlie Baker is scheduled to announce the Massachusetts version of the plan Wednesday, as it joins 20 other states that have launched ABLE programs over the past year.

To qualify, participants must have become disabled before age 26, and meet the federal definition of severe physical or mental disability. A key advantage of the new accounts is they allow disabled people to accumulate up to $100,000 without jeopardizing Medicaid coverage or other government-funded services. In the past, a disabled person could have no more than $2,000 in assets to qualify for federal benefits.

“It discouraged people from work who want to be part of the community and have a meaningful life,’’ said Gallagher, of the Down Syndrome group.

Ann Kelly,a mother of four in Lexington, says the savings plan will help the family set aside money for her oldest daughter, Katie. At age 22, Katie is about to graduate from the Riverview School on Cape Cod and is working at a hospital internship. Like many young adults, she’s figuring out what comes next.


“For a meaningful day for Katie, a long-term vision would be a part-time job, some recreational opportunities, to be able to join a gym,’’ Ann Kelly said. Katie hopes to save money for job training and, eventually, group home living, her mother said.

“She wants to live with friends like everybody does when they graduate,’’ Kelly said.

In Massachusetts, the program will be run by the nonprofit Massachusetts Educational Financing Authority. Fidelity Investments will manage the money. Boston-based Fidelity also manages the state’s 529 college savings contract, which allows parents to save for their children’s education without paying taxes on investment gains. It has about $18 billion in 529 plan money under management.

Similar to a 529, ABLE money goes in after taxes, and it’s permitted to grow tax-free. The funds are not taxed when they leave the account, so long as they are spent on qualified items, including living expenses.

But ABLE is more flexible than the college savings vehicle. For instance, ABLE money can be linked to a cash management account, with check writing and a Fidelity-issued debit card, and then used to pay qualified expenses at any time.

Baker, in a statement, said, “We are pleased to support MEFA’s efforts to launch this new opportunity and further help those families get the assistance they need, while empowering them to save and invest for their future.”


In other states, Fidelity rivals such as Vanguard Group, BlackRock Inc., and Charles Schwab Corp. are managing money in these plans. So far, there are about 10,000 account holders nationwide, according to Chris Rodriguez, director of the ABLE National Resource Center in Washington, D.C.

Rodriguez estimates that there are at least 7 million people in the country eligible for the program, and his group is pressing to raise the disability age limit higher, to 46.

Disabled people can save more in theses accounts — up to $375,000 in Massachusetts — if they’re not concerned about qualifying for federal benefits. Still, there are questions about how much money the plans will attract and whether they will generate significant revenue for firms managing the accounts.

“At this time nobody really knows whether or when these programs will be profitable,’’ said Thomas Graf, executive director of MEFA.

Beth Healy can be reached at Follow her on Twitter @HealyBeth.