The Achieving a Better Life Experience (ABLE) Act is still fairly new; it was signed into law in December of 2014, so many people are still unaware of what it is and how it can be used.1 In fact, only a few states will have their programs up and running in 2016. The bill’s intent is to ease the financial burdens faced by individuals with disabilities by making tax-free savings accounts available that can cover expenses such as housing, transportation, and education. Let’s take a closer look at the ABLE Act and how it might be helpful to you with your financial planning.
What Are ABLE Accounts?
ABLE accounts are tax-advantaged saving accounts similar to 529 college-savings accounts, but they are for the financial security of people with disabilities. Contributions to ABLE accounts are made on an after-tax basis, and the earnings in the account grow tax-deferred and withdrawals are tax-free if they’re used to pay for qualified disability expenses.
Under current laws, individuals with disabilities can only maintain $2,000 in assets at any given time in order to stay eligible for means-tested federal programs like Medicaid and other benefits. Under ABLE, eligible individuals and their families can establish ABLE accounts, which do not affect their eligibility for Medicaid, Social Security, and other public welfare programs. These accounts are also helpful for parents of adult children with disabilities because they can plan for their children’s expenses after their own deaths: the beneficiary is the owner of the account.
Eligibility for ABLE Accounts
There are two requirements for ABLE account eligibility:
- The onset of the individual’s symptoms must have occurred before the age of 26; and
- The individual must have “marked and severe functional limitations” (in other words, the disability must fit the Social Security definition of disability)
Individuals who are already receiving SSI and/or SSDI are automatically eligible for ABLE accounts.
Those who are not already receiving these benefits can obtain disability certification from their physicians.
Account Limits
Annual contributions to ABLE accounts from all contributors (the beneficiary himself, family, and friends) cannot exceed $14,000 in one calendar. Over time, this maximum limit will be adjusted for inflation. Over the lifetime of the account, total contribution limits will be tied to the individual state’s maximum amount for regular 529 accounts. In most states, this maximum amount is around $350,000.
The first $100,000 in an ABLE account will be exempt from the Social Security $2,000 individual asset limit. After the account reaches $100,000 the beneficiary’s Social Security income will be suspended (not terminated). However, Medicaid eligibility will remain intact no matter how high the ABLE account’s balance.
What Kinds of Expenses Can Be Paid From ABLE Accounts?
The bill states that ABLE accounts must be used for “qualified disability expenses.” What kinds of expenses qualify?
- Education
- Housing
- Transportation
- Health Care
- Financial Management
- Personal Support Services
- Employment Training and Support
- Assistive Technology
- Administrative Services
Other expenses may qualify if they enhance the quality of life of the beneficiary.2
Additional Information
Beneficiaries do not have to get approval before spending the money in their ABLE accounts, but they are required to maintain documentation (like receipts and invoices) to prove that their expenses were qualified.
ABLE programs vary from state to state. Some include debit cards, and others don’t. Individuals can open up their ABLE accounts in any state, even in a state they don’t reside in. This rule allows you to shop around for a program that best suits your needs.
Most states won’t launch their programs until 2017, but a few states (including Colorado, Florida, Illinois, Michigan, Nebraska, Ohio, Tennessee, Texas, Utah, and Virginia) are set to open their programs in the spring or summer of 2016.3
For more information about ABLE accounts, or to find out how an ABLE account can fit into your long-term financial planning strategy, contact a Wealth Manager or give us a call at 1-800-541-7774.
Source:
1. NDSS
2. Financial Planning Association
3. NDSS
