What to Do with a 529 Plan for Your Child with Special Needs
Many parents open a 529 plan with the expectation that their child will one day attend college or pursue higher education. When a child later receives a disability diagnosis, it is natural to question whether a 529 is still the right savings vehicle. For children with intellectual disabilities (ID) or significant developmental challenges, a 529 may ultimately prove to be a poor fit. That’s because 529 funds are limited to education-related expenses —such as tuition, required fees, books, supplies, and eligible room and board. Most disability-related costs, including therapy, personal care, housing, transportation, and daily support needs, do not qualify. Using 529 funds for these purposes can trigger taxes and penalties , creating unexpected consequences for families. A common myth is that if the beneficiary is disabled, 529 withdrawals are automatically penalty-free and tax-free. This is not entirely true. While the 10% federal penalty on earnings may be waived when the beneficiary ...