The Achieving a Better Life Experience (ABLE) Act, enabling the creation of tax-advantaged savings accounts for individuals with qualifying disabilities, was enacted in law on December 9, 2014. It amends Section 529 of the Internal Revenue Code of 1986.
Individuals with disabilities and their families often receive public benefits for income, health care, food and housing assistance, and other related supplementary special needs programs, including such benefits as SSI, SNAP and Medicaid, which require means or resource testing to determine and/or maintain eligibility. Eligibility for certain public benefits may be forfeited if an individual has more than $2,000 in cash savings, retirement funds or other valuable assets. Recognizing the extra and significant cost of living with a disability, the ABLE Act affords individuals with qualifying disabilities and their family members the ability to establish savings accounts to fund a variety of expenses for those disabled individuals through supplementing their access to supportive funding, while not supplanting their eligibility for SSI, Medicaid and other public benefits.
The following are significant provisions regarding ABLE accounts:
- The ABLE Act is a federal law; however, each state has the authority to offer specific options and provide certain restrictions with respect to the establishment and operation of ABLE accounts.
- The eligibility for ABLE accounts is restricted to individuals who have incurred the onset of significant disabilities (meeting the SSI criteria regarding significant functional limitations) before turning 26 years old.
- Each disabled individual can have only one ABLE account.
- The total of annual contributions which may be made to an ABLE account by a disabled account beneficiary, and his or her family and friends is currently $14,000, and will be adjusted annually for inflation.
- Although contributions to an ABLE account are not tax deductible to the contributor, income earned by an ABLE account is tax free.
- The maximum total of contributed funds is subject to each state’s limit for education-related 529 accounts (generally exceeding $300,000 per ABLE account – Pennsylvania’s contribution limit from all contributors is currently $452,210 per beneficiary).
- However, there are certain limitations for beneficiaries receiving SSI. The first $100,000 in an ABLE account is exempted from the SSI $2,000 individual resource limit; however, if an ABLE account exceeds $100,000, the designated beneficiary will be suspended from eligibility for SSI benefits and will no longer receive SSI monthly income but would still continue to be eligible for Medicaid. (Upon the death of an ABLE account beneficiary, some states may recover from the ABLE account the value of benefits paid by Medicaid on behalf of the beneficiary.)
- Funds in an ABLE account may be used for “Qualified Disability Expenses,” which include any expense of the designated beneficiary as a result of living with disabilities , such as the costs of community-based supportive services, employment training, assistive technology, education (including tuition for preschool through post-secondary education, books, supplies and tutors), housing (including purchase of a primary residence, payment of real estate taxes, utilities and repairs), transportation (including the purchase of vehicles and moving), personal assistance services, financial management, administrative services, preventive health and wellness programs, durable medical equipment, communicative services and devices, and medical and dental care not covered by insurance, Medicaid or Medicare.
- An ABLE account differs from a special needs trust or a pooled trust because it provides more choices with respect to Qualified Disability Expenses and control of the account funds by the designated beneficiary and his or her family during the life of said beneficiary and/or upon a change in circumstances. Rollovers are permitted to another family member’s ABLE account, a trust which qualifies under Medicaid rules or to a 529 account if the designated beneficiary is no longer deemed disabled. ABLE accounts can be used in conjunction with special needs trusts to provide multiple suitable sources of funding to benefit individuals with special needs.
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