The Achieving a Better Life Experience (ABLE) Act became law on December 19, 2014. The new law creates an option for people with disabilities and their families to save for the future, while protecting eligibility for public benefits, without creating a special needs trust or similar estate planning instrument.
What is an ABLE Account?
- Are qualified savings accounts that receive preferred federal tax treatment
- Enable eligible individuals to save for disability related expenses
- Are NOT yet available, and there are still some unknowns
- Assets in and distributions for qualified disability expenses will be disregarded or given special treatment in determining eligibility for most federal benefits based upon financial need
Who is eligible to be an ABLE account beneficiary?
To be eligible, individuals must meet two requirements:
- Age requirement: ABLE account beneficiary must be disabled before age 26
- Severity of disability requirement: ABLE account beneficiary must
- Have been determined to meet the disability requirements for Supplemental Security Income (SSI) or Social Security disability benefits (Title XVI or Title II of the Social Security Act), OR
- Submit a “disability certification”, including a physician’s diagnosis, that the individual meets criteria to be further established in regulations (essentially equal to Social Security level of disability).
What are some important requirements of ABLE account?
- Each eligible individual may have only one ABLE account.
- “Designated beneficiary” is the account owner.
- Account must be established in the designated beneficiary’s state of residence, or in a contracting state.
- Total annual contributions may not exceed the federal gift tax limit, which is currently $14,000.
- Multiple individuals may make contributions to the one ABLE account.
- Aggregate contributions may not exceed the state limit for 529 savings accounts. In New Jersey, the Maximum Contribution Limit is $305,000 at present.
What may funds from an ABLE account be used for?
Funds in ABLE accounts may be used for the following purposes:
- Employment training and support
- Assistive technology and personal support services
- Health, prevention, and wellness
- Financial management and administrative services
- Legal fees
- Expenses for oversight and monitoring
- Funeral and burial expenses
- Any other expenses approved by the Secretary of the Treasury under regulations consistent with the purpose of the program
Expenditures for non-qualified expenditures will be penalized (tax and potential SSI penalties).
How do ABLE account assets impact eligibility for federal benefits?
Funds in ABLE accounts will be disregarded or receive favorable treatment when determining eligibility for most federal means-tested benefits:
- SSI: For SSI, the first $100,000 in ABLE account assets will be disregarded. SSI payments will be suspended if the beneficiary’s account balance exceeds $100,000 but SSI benefits (eligibility) will not be terminated. Funds above $100,000 will be treated as resources.
- Housing expenses are intended to receive the same treatment as all housing costs paid by outside sources (SSI benefits subject to reduction of 1/3 federal SSI payment, as applicable).
- Medicaid: Funds in ABLE accounts are disregarded in determining Medicaid eligibility. Medicaid benefits are NOT suspended if the ABLE account balance exceeds $100,000.
- Medicaid Payback: Any funds remaining in the ABLE account when a beneficiary dies, subject to outstanding qualified disability expenses, will be used to reimburse a state for Medicaid payments made on behalf of the beneficiary after the creation of the ABLE account
Contributions to an ABLE account are made with post-tax dollars.
Federal taxation: In general, ABLE programs are exempt from taxation. Distributions from ABLE accounts for qualified disability expenses are exempt from taxation. With certain exceptions, distributions not used for qualified disability expenses are taxable and subject to an additional 10% tax.
State taxation: State tax consequences will vary. Some states provide significant tax incentives for contributions to 529 accounts and may provide similar incentives for contributions to ABLE accounts.
When will ABLE accounts be available?
Federal regulations are not written yet. The Treasury Department is required to issue regulations or guidance within six months of enactment of the ABLE Act.
Before ABLE accounts become available, States must pass authorizing legislation.
Each state must decide whether (and how) to offer a qualified ABLE program to residents –some considering authorizing legislation now.
The timing of ABLE program availability will vary from state to state:
- Bills that have passed: VA (signed into law); UT & WV (waiting to be signed by Governor); MN (funding mechanism in budget); LA & MA (passed prior to federal passage, need to be revised)
- Active bills (30) : AL, AR, CA, CT, DE, FL, HI, IL, IA, KS, KY, MD, MA, MN, MT, NE, NV, NH, NJ, NM, NY, ND, OR, PA, RI, SC, TN, TX, VT, WA
- Bills in drafting (7): AK, CO, LA, MI, NC, OH, WI
Treasury and IRS: No Need for States to Wait
Memo from Treasury/IRS encouraging states to forge ahead to develop ABLE programs
“The Treasury Department and the IRS do not want the lack of guidance to discourage states from enacting their enabling legislation and creating their ABLE programs, which could delay the ability of the families of disabled individuals or others to fund ABLE accounts for those disabled individuals” –Notice 2015-18
Treasury intends to provide “transition relief” to states whose programs don’t comply with federal guidelines, including “sufficient time” to implement necessary changes.
(The above article is adapted from a webinar presented by the ABLE National Resource Center, a collaboration of 23 national disability organizations, who goal is to provide a consistent disability voice to accelerate ABLE Act implementation at a federal and state level)
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