By Michael Morris
The Achieving Better Life Experience Act, or ABLE Act, was signed into law by President Obama last December. ABLE amends the Internal Revenue Code, to allow eligible individuals with disabilities and their families to establish a tax-exempt savings account that allows disbursements of income tax-free funds for “qualified disability expenses,” including education, transportation, housing, obtaining and maintaining employment, personal support services, acquisition of assistive technology and health and wellness.
To benefit from this legislation, ABLE account programs must be established by each state. Most likely, these programs will be managed by state treasury offices who also currently manage 529 college savings programs.
Forty states have filed ABLE related legislation within their respective state legislatures, with just under 20 having already been passed. We are hopeful that many of the remaining bills will pass with bipartisan support and be signed into law within the next year, leading the way to the implementation of what is certain to be a valuable tool for individuals with disabilities and their families.
For more information on the ABLE Act and ABLE accounts, please visit National Disability Institute’s website at www.realeconomicimpact.org.
To help explain the ABLE Act, I created a video about the 10 things you should know about ABLE accounts. Below is a condensed version of what I say in the video above:
ABLE Accounts are tax-exempt savings accounts for individuals with disabilities and their families. Income earned by and contributions made to the account are not taxed.
Many individuals with disabilities and their families depend on public benefits such as SSI, SNAP and Medicaid. To be eligible for public benefits, you must not have more than $2,000 in cash savings, retirement funds and other items of significant value.
Eligibility for public benefits also requires you remain below the federal poverty line. However, with ABLE accounts individuals and families will be allowed to establish savings accounts that will not affect their eligibility for public benefits.
ABLE Act limits eligibility to individuals with significant disabilities (including mental health conditions) developed before turning 26 years of age. This means you don’t have to be under the age of 26 as long as you have documentation that proves onset of disabilities before age 26.
If you meet the age of onset criteria and are already receiving benefits under SSI and/or SSDI, you are automatically eligible. If you meet the age of onset requirement but don’t receive SSI and/or SSDI you are still eligible to open an ABLE account if you meet SSI criteria regarding significant functional limitations.
The regulations by the Treasury Department will explain further the standard of proof and required medical documentation.
The total annual contributions, by all participating individuals, including family and friends, is $14,000, an amount which will be adjusted annually for inflation. Under current tax law, $14,000 is the maximum amount that individuals can make as a gift to someone else and not pay taxes.
The total limit over time that can be made is dependent on individual states and their limit for education-related 529 savings accounts. Many states have set this limit at more than $300,000 per plan.
For individuals with disabilities, who also receive SSI and Medicaid, there are some further limitations. The first $100,000 in ABLE accounts will be exempted, from the SSI $2,000 individual resource limit. When an ABLE account exceeds $100,000 the beneficiary will be suspended from eligibility for SSI benefits and no longer receive that monthly income. However, the beneficiary will continue to be eligible for Medicaid.
A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. These include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses described in regulations by the Treasury Department.
Each state is responsible for establishing and operating an ABLE program. If your state does not have its own program, it may contract with another state to still offer ABLE accounts to those eligible.
The Secretary of the Department of Treasury's regulations guide the states, no accounts can be established until the regulations are finalized following a public comment period on proposed rules for program implementation. States will begin to accept applications to establish ABLE accounts before the end of 2015.
No. The ABLE Act limits the opportunity to one ABLE account per eligible individual.
Like state 529 college savings plans, states likely offer qualified individuals and families options to establish ABLE accounts with varied investment strategies.
Each individual and family will need to plan possible future needs and costs over time and measure their risk budget for future investment strategies, in order to grow their savings.
The ABLE Act Account limits contributors or designated beneficiaries to change the way their money is invested in the account up to a maximum of two times per year.
There are 5.8 million individuals with disabilities in the United States. About 10% of that 5.8 million meet the definition of significant disability required by legislation to be eligible to establish an ABLE account.
An ABLE Account will provide more choice and control for the beneficiary and family. The cost of establishing an account will be considerably less than either a Special Needs Trust (SNT) or Pooled Income Trust.
With an ABLE account, account owners will have the ability to control their funds and, if circumstances change, still have other options available to them. Determining which option is the most appropriate will depend upon individual circumstances. For many families, the ABLE account will be a significant and viable option in addition to, rather than instead of, a Trust program.
Michael Morris is the executive director of the National Disability Institute.
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