Senator Proposes Tax-Advantaged Disability Savings Account

Sen. Chris Dodd (D-CT) has introduced a bill in the Senate that would enable families with disabled children or other family members to contribute to a tax-advantaged account designed to make it easier for disabled people to maintain their health, independence, and quality of life.

The Disabilities Savings Act of 2008 would establish Disability Savings Accounts (DSAs), which are intended to promote the investment of private funds through tax-advantaged savings tools, including tax credits for low-income families, while protecting the disabled person’s access to public supports.

“This important legislation is designed to help individuals with disabilities live full and productive lives for all their years,” said Dodd. “It provides families with an important tool to save the money they need for their unique needs and provide for their children long after they are gone.”

Under the proposed legislation, DSAs will be capped at $1 million, and interest on accounts with a balance of $250,000 or less will be tax free. Withdrawals from DSAs will be tax free provided they are used to pay for specific services, such as education, medical expenses, employment training and support, and transportation. Beneficiaries of the accounts must be under the age of 65 and be determined to be blind or disabled by the Social Security Administration or the Disability Determination Service of a state. The account can be handled and managed by the beneficiary, his or her spouse, a family member, or a legal guardian. Assets held in DSAs will not be counted against eligibility for Medicaid, Social Security benefits, or other federal support services.

“The disability savings accounts that Senator Dodd is proposing today gives people with disabilities a real chance for financial security,” said Stuart Spielman of Autism Speaks, an organization of families of children with autism and other disabilities. “By providing tax incentives for savings and by eliminating the risk of inadvertent disqualification for means-tested federal programs, these accounts will make planning for the future easier. As the parent of a child with autism, that’s very important to me.”