Best state for ABLE plan?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
frcabot
Posts: 4
Joined: Mon Mar 26, 2018 12:59 am

Best state for ABLE plan?

Post by frcabot » Mon Mar 26, 2018 1:04 am

Hello,

I currently have an ABLE account for myself with the Massachusetts ABLE plan, which is managed by Fidelity. I'm 31. The funds are invested in the aggressive 85% plan, but the expense ratio is relatively high at around 0.9%, plus a $30 annual fee. I have about $20K in the plan. I live in California.

Many states don't yet offer ABLE plans (like CA). Some states allow ABLE plans but don't allow out-of-state residents to open an account. Several states, including MA, both offer ABLE accounts and allow out of staters like me to open an account.

It's very hard to compare ABLE plans to each other as they have different servicers, different investment options, different annual fees (most are around $45 yearly), etc. Has anyone already done the research and know which state offers the best ABLE account with the best investments and lowest fees? Ideally I'd just like a general index investment with a 0.1% fee or something, but I know that's very unlikely to be offered anywhere.

Spirit Rider
Posts: 9144
Joined: Fri Mar 02, 2007 2:39 pm

Re: Best state for ABLE plan?

Post by Spirit Rider » Mon Mar 26, 2018 3:33 pm

You are not going to find any 529 ABLE plan with no annual account fee and expense ratios of 0.1%, certainly for non-residents. I call the reason for this the "529/HSA Effect". While they might be quite popular among Bogleheads, only a distinct minority of the population takes advantage of either of those plans. With volume comes competition and lower costs. Now consider the minuscule population eligible for 529 ABLE accounts. If they hadn't been smart and piggy backed on Section 529, they would be even more expensive.

ABLE plans will have the same pattern as the majority of HSA accounts. Their owners will be making a number of withdrawals throughout every year such as by a debit card. Compare this to retirement accounts, where most withdrawals only happen in retirement and then maybe once a year. This adds significant administrative costs.

529 plans, especially ABLE accounts can only be administered by a state. When does a state see money and not figure out a way to skim off the top. The dirty little secret is that a significant portion of program management fees goes to the state. For example, Maryland and Oregon take 0.30% in administrative fees themselves in their 529 ABLE plans.

The best I have seen so far is LA ABLE for Louisiana state residents only. No annual fee, no program management fee and 0.07%-0.15% for six Vanguard funds, including the four LifeStrategy Funds. There is a state alliance of GA, KY, MO, NH, OH, SC, and VT that offers funds with asset based fees of 0.31%-0.34% for those state's residents (0.57%-0.60% non-residents).

For non-residents the National ABLE Alliance of AK, CO, DC, IL, IA, IN, KS, MN, MT, NC, NV, PA and RI. Offers funds with asset based fees of 0.34%-0.38%. Their program management management fee is 32% and I'm sure the states gets a significant chunk of that. The underlying expense ratios are 0.02%-0.06% (based on fixed portfolios using Vanguard, Schwab and iShares funds/ETFs). They have a $15 ($11.25 e-delivery)/qtr account fee.

The best plan for non-residents based on cost might be Tennessee's ABLE TN, offering Vanguard and DFA funds with asset based fees mostly in the range of 0.35%-037% (Wellington at 0.35%) with no account fees. As always the devil is in the details. E.g. the plan does not offer a debit card.

Do your own due diligence. You can check all the available state 529 ABLE plans here. 529 ABLE Accounts

nervouscorps
Posts: 36
Joined: Sun Jan 05, 2014 8:01 pm

Re: Best state for ABLE plan?

Post by nervouscorps » Mon Mar 26, 2018 5:23 pm

I live in California and got the plan through Ohio. California is supposedly working on establishing their plan but it will probably take some time. My concerns were funds investable (Ohio is Vanguard Lifestrategy funds) and limits of contributions.

MarvinK
Posts: 102
Joined: Wed Apr 12, 2017 8:04 pm
Location: DC

Re: Best state for ABLE plan?

Post by MarvinK » Mon Mar 26, 2018 8:39 pm

Welcome frcabot!
I'm glad that frcabot and other Bogleheads are posting and replying. When I researched a few ABLEs for my cousin, I was also surprised at how relatively high the expense ratios are. I can only hope there will be a sit-in or wheel-in to bring awareness to the big difference in ER between similar types of investments. As a note, right now more people can withdraw funds from their 529s for private schools.

frcabot
Posts: 4
Joined: Mon Mar 26, 2018 12:59 am

Re: Best state for ABLE plan?

Post by frcabot » Mon Mar 26, 2018 9:05 pm

Thanks all. I would not be using the debit card feature but rather just investing the money for a long time (or until the account reaches the 400K limit) as the real benefit is tax free growth like Roth IRAs. The contributions themselves are not tax deductible (in California) and I don't receive ssi (rather ssdi) so don't care about the ssi asset limits. I already had relatively high assets for my age when I became disabled and I earned very good income before I became disabled full time, so I have about 450K in non-retirement accounts and assets, and about 200K in retirement accounts (all this to say I will never ever qualify for SSI barring a bankruptcy that wipes me out). (Most of my funds are with betterment as I don't have the patience to actively rebalance and tax harvest; I have 60K in a fidelity sp500 premium shares mutual fund or whatever it's called with like a 0.05% expense ratio, and about 80-90K in other various low expense ETFs.

What are the Ohio fees and expense ratios?

The Tennessee option sounds like the best followed by the national ABLE thing you mentioned. I like fidelity but a nearly 1% expense ratio feels like robbery esp since their funds don't outperform index funds over the long term. I'll look into both.

Thank you!
Last edited by frcabot on Mon Mar 26, 2018 9:43 pm, edited 1 time in total.

akron1977
Posts: 45
Joined: Wed Jul 01, 2015 6:48 pm

Re: Best state for ABLE plan?

Post by akron1977 » Mon Mar 26, 2018 9:30 pm

The ABLE TN recently changed; now open only to TN residents. We opened one using them for our daughter two years ago, since Missouri was still in the process of establishing ABLE accounts

frcabot
Posts: 4
Joined: Mon Mar 26, 2018 12:59 am

Re: Best state for ABLE plan?

Post by frcabot » Mon Mar 26, 2018 9:37 pm

Yeah I looked at TN and it didn't seem like it would work. I checked OH but there is a 0.45% administration fee for out of state residents. The best looks like the National Able Plan. The index funds for the aggressive option (90/10) have a 0.05% expense ratio plus a 0.32% program administration expense for a total of 0.37%, split across vanguard, schwab, Blackrock and ishares funds/ETFs. The dollar fee is $45 for e-statements rather than the $30 at Fidelity, but even on my measly 20K balance I'd be saving ~0.5%, or about $100, more than making up for the extra $15. And as the balance grows (I will be maxing out the contributions which are $15K per year atm), those savings will only grow.

JDDS
Moderator
Posts: 961
Joined: Sun Mar 16, 2014 2:24 pm

Re: Best state for ABLE plan?

Post by JDDS » Mon Mar 26, 2018 11:20 pm

I was comparing the various plans last summer. Unfortunately I don't have much to add that other posters have not already covered. I am happy to see lots of index fund options in these plans at least, even if the fees are several times what we would expect in other accounts. At least you can get a familiar investment? :)

Krischi
Posts: 92
Joined: Tue Dec 02, 2014 2:23 pm

Re: Best state for ABLE plan?

Post by Krischi » Tue Mar 27, 2018 9:06 am

One thing to consider is that like for 529 plans, some states offer tax benefits on contributions. For instance, Maryland offers a $2500 income subtraction per account per year for contributions, which works out to about $180-220 state/local tax savings for the majority of eligible residents.

Personally, I've decided that this, plus the need to get documentation from a physician, is not worth the hassle for now. The expense ratios and fees are high enough that there is a fairly limited benefit over investing in a taxable account with paying taxes as-you-go (with thanks to Triceratops's excellent tax efficiency spreadsheets).

With that said: the ability to exclude ABLE accounts from means testing may matter to a lot of eligible people. It doesn't apply to me, but if it did, I might reconsider.

frcabot
Posts: 4
Joined: Mon Mar 26, 2018 12:59 am

Re: Best state for ABLE plan?

Post by frcabot » Tue Mar 27, 2018 1:04 pm

I'm not sure what spreadsheet you're referring to but IMO the ability to have tax free growth, in essence an additional Roth IRA except with a $15K/year cap instead of a 5.5K/year cap, is hugely worth it. If you're going to be using it as a checking account, agreed it doesn't make sense. But for an additional long-term retirement account it's great, especially since I'm not currently employed and so can't contribute to a Roth 401K. (And I fully expect that my tax rate in the future will be much higher than what it is now, essentially 0%.)

If California ever gets its act together and implement its own tax deduction for contributions, so it has the advantages of both a Traditional IRA and a Roth IRA (with tax free earnings), that would be even better.

Krischi
Posts: 92
Joined: Tue Dec 02, 2014 2:23 pm

Re: Best state for ABLE plan?

Post by Krischi » Tue Mar 27, 2018 1:33 pm

frcabot wrote:
Tue Mar 27, 2018 1:04 pm
I'm not sure what spreadsheet you're referring to but IMO the ability to have tax free growth, in essence an additional Roth IRA except with a $15K/year cap instead of a 5.5K/year cap, is hugely worth it. If you're going to be using it as a checking account, agreed it doesn't make sense.
I should have been clearer. Yes, I was thinking of it in the sense of a checking account. We already use a lot of tax-advantaged space, and for what additional savings we accumulate, the ABLE account restrictions on spending are not a good fit. Most of the anticipated eligible expenses are short-term for us, so we wouldn't invest them in the first place. And for some of the longer-term ones we already have better and cheaper vehicles (e.g. HSAs).

robebibb
Posts: 100
Joined: Tue Mar 27, 2012 11:52 am

Re: Best state for ABLE plan?

Post by robebibb » Tue Mar 27, 2018 1:36 pm

I have only briefly looked into ABLE plans but my impression is that you will be able to rollover unused 529 monies into an ABLE plan. We have a 3 y/o who will likely benefit from an ABLE plan in the future but thus far we're funding a 529 and will rollover into an ABLE account if necessary. Of course we hope this is not necessary but it's a good option if post secondary education is not a path available to him due to his disabilities.

Post Reply