Tax-Free ABLE Accounts Will Soon Help Some Disabled People Save Money
Written by Tracy Zanco, Esquire
Pursuant to the Achieving a Better Life Experience (ABLE) Act of 2014, new tax-free savings accounts will soon be available for certain people with disabilities. The ABLE Act amends Section 529 of the Internal Revenue Code of 1986 and aims to help people with disabilities save money while retaining important government benefits. Accounts may be in place in some states in 2015, but the implementation dates will vary from state to state. The Florida ABLE Program will be implemented on or before July 1, 2016.
Under the ABLE Act, the tax-free savings accounts can be used to pay for qualified disability-related expenses such as the costs of treating the disability or for education, housing, and health care. Funds in the accounts will not affect an individual’s ability to qualify for benefits like SSI or Medicaid as long as the balance does not exceed $100,000.
Although the ABLE Act is a federal law, each state will set up its own programs that will enable people to invest in the ABLE accounts, which may also be known as “529A accounts.” The accounts will provide investment options. In Florida, Florida ABLE, Inc., a not-for-profit direct support organization, will receive, hold, invest, and administer property and make expenditures for the Florida ABLE Program. Florida ABLE, Inc. will establish a comprehensive investment plan for the Florida ABLE Program.
ABLE accounts may be established by any contributor (parent, friend, family member) for the benefit of an eligible beneficiary of any age so long as the disabled person can prove he met the standard for disability prior to the age of 26. A recipient of SSI or SSDI will meet the disability requirement, but others will need to be certified under the act.
The ABLE accounts will have a maximum annual contribution which may not exceed the annual gift-tax exclusion, ($14,000 for 2015). Each state will set a maximum aggregate contribution up to its limit on qualified tuition plans, which ranges from $300,000 to $400,000. Important to note, however, is that SSI will only exempt the first $100,000. To remain eligible for SSI, an individual will be able to have an ABLE account of up to $100,000 and may also have other assets up to $2,000. Otherwise, the individual would lose SSI benefits, but can remain eligible for Medicaid.
ABLE accounts will have tax benefits similar to 529 accounts. Neither qualified distributions nor earnings will be counted as taxable to the contributor or the beneficiary. Contributions, however, are made from post-tax income. Assets in an ABLE account may be rolled over to another ABLE account for the benefit of another qualified individual who is a sibling or step-sibling of the beneficiary.
The ABLE accounts will have a Medicaid payback provision. Upon the death of the beneficiary, Medicaid payments made on behalf of the beneficiary after the establishment of the ABLE account must be reimbursed with any remaining funds.
ABLE accounts will be a useful way for some disabled people to save modest amounts of money while remaining eligible for benefits, but they are unlikely to replace the use of Special Needs Trusts or pooled trusts. Since they will be easy and inexpensive to open, however, the ABLE accounts will be a good option for many people to consider.
If you need assistance with planning for a disabled person, please contact us. The Elder Law Center of Kirson & Fuller is here to help.
Key facts about eligibility for ABLE accounts:
-Disabled person must have proof of diagnosis before the age of 26.
-To prove disability, receipt of SSI or SSDI benefits is sufficient; otherwise a certification process will be established.
Key facts about monetary limits of the ABLE accounts:
-$14,000 per year maximum contribution.
-Accounts larger than $100,000 may compromise eligibility for benefits.
-Each state may set a maximum aggregate contribution up to the state’s limit on qualified tuition programs, which is between $300,000 and $400,000.
-There is a mandatory Medicaid payback.