President Signs ABLE Act

By Paul Goyette

On December 19, 2014, the Achieving a Better Life Experience legislation (ABLE Act) was signed into law by President Obama.  The new law, codified under IRC Section 529A, permits qualified individuals with special needs and disabilities to establish tax-free savings accounts that will help support their health and independence while preserving their means-tested government benefits. Beginning in 2015, states may choose to develop programs enabling persons with disabilities to establish accounts modeled on the popular 529 college savings plans.  Certain balances and disbursements will not be considered when establishing an individual’s eligibility for means-tested government benefits.  The Secretary of the Department of the Treasury will begin to develop regulations that will guide the states in terms of the information required to be presented in order to open an ABLE account.  This information will likely include documentation needed to meet the requirements of ABLE account eligibility for a person with a disability, the definition details of “qualified disability expenses” and the documentation that will be needed for tax reporting.  

The law aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing, and transportation.  The legislation explains that an ABLE account would supplement, but not supplant, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment, and other sources.  The law will eliminate barriers to work and saving by preventing dollars saved through ABLE accounts from counting against an individual’s eligibility for any federal benefits program.

The intent of the ABLE Act is to provide individuals with disabilities the same types of flexible savings tools that all other Americans have through college savings accounts, health savings accounts, and individual retirement accounts. The ABLE Act recognizes the extra and significant costs of living with a disability.  These include costs related to raising a child with significant disabilities or a working age adult with disabilities, for accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare.  Additionally, an ABLE account may provide more choice and control for the beneficiary and family.  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.

We will keep you informed with updates about the ABLE Act and its implementation to help you decide how and when to incorporate the ABLE Act accounts into your own personal planning.  Stay tuned for our next article discussing the ABLE Act, where we will review specific qualification and funding guidelines, as well as who may be a good candidate for an ABLE account.  Please feel free to contact us with questions or for further discussion.    

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended as tax or legal advice.  Investing involves risk including loss of principal. 

Prior to investing in an ABLE Act account investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state ABLE Act program.  Please consult with your tax advisor before investing. 

^{Financial planning offered through Northeast Planning Associates, Inc. (NPA), a registered investment adviser. Securities and advisory services offered through LPL Financial, a registered investment adviser and member FINRA/SIPC. NPA and LPL Financial are not affiliated. 15-048}