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The ABLE Act and What It Means To You

By Paul Goyette

As we discussed last time, The ABLE Act would amend Section 529 of the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities. ABLE accounts are tax advantaged savings accounts for individuals with disabilities and their families. Income earned by the accounts will not be taxable. Contributions to the account, made by any person (the account beneficiary, family and friends), would not be tax deductible. An ABLE account could fund a variety of essential expenses for individuals, including medical and dental care, education, community-based supports, employment training, assistive technology, housing, and transportation. 

Eligible individuals and families will be allowed to establish ABLE savings accounts that will not affect eligibility for Supplemental Security Income (SSI), Medicaid and other public benefits. Eligibility is limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If one meets this criteria and are also receiving benefits already under Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI), you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you would still be eligible to open an ABLE account if you meet SSI criteria regarding significant functional limitations. Additionally, you could be over the age of 26,but must have the documentation of disability that indicates age of onset before the age of 26. 

The total annual contributions by all participating individuals, including family and friends,is $14,000. The total limit over time that could be made to an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts. However, for individuals with disabilities who are recipients of SSI and Medicaid, only the first $100,000 in ABLE accounts would be exempt from the SSI individual resource limit. If and when an ABLE account exceeds $100,000,the beneficiary would be suspended from eligibility for SSI benefits and no longer receive that monthly income. However, the beneficiary would continue to be eligible for Medicaid. Additionally, when the ABLE beneficiary dies, remaining assets in the account go to the state Medicaid program which provided benefits during life (after payment of other bills and limited to the amount the Medicaid program actually paid for the beneficiary's care). Remaining funds can be distributed to either the decedent's estate or a designated beneficiary. Alternatively, remaining funds can be rolled over into another ABLE account for the benefit of a family member with a qualified disability. 

If ABLE account funds are used to pay for "qualified disability expenses," there will be no income taxation on the interest or gain in value of the ABLE assets, and the expenditure will not be counted as income to the beneficiary. A "qualified disability expense" means an expense related to education, housing,transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services, legal fees, expenses for oversight and monitoring,funeral and burial expenses and other expenses which will be further described in regulations to be developed in 2015 by the Treasury Department. 

Our next article will address who may be a good candidate for an ABLE account. 

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.