President Obama signed an act called Achieving a Better Life Experience Act on December 19, 2014. This is now called the ABLE Act. This new law will allow certain individuals with disabilities to create tax-free savings accounts. These savings accounts will be available for certain folks who are qualified for Medicaid to use to cover expenses not otherwise covered by government-sponsored programs. What a wonderful alternative or supplement to a special needs or supplemental needs trust.
Here are five important things you need to know about the ABLE Act.
1. What is an able account? An ABLE account is a lot like a 529 education savings plan that families use to save for college. So it is a tax-free, state based private savings account. This account can only be used to pay for the care of people with disabilities. Income earned in the account will not be taxed. The downside is contributions to the account will not be tax-deductible.
2. Who is eligible for an ABLE account? The only people eligible will be individuals with significant disabilities. A requirement of the act is that the disability has an onset prior to the person turning 26 years of age. If the individual meets these criteria and they are receiving benefits under SSI and or SSDI, they are already eligible to establish an ABLE account. If the person is not receiving SSI and/or SSDI but they still meet the age requirement they would still be eligible to open such an account, assuming the SSI criteria regarding functional limitations are met. Also, if the person is over the age of 26 but has documentation that their disability began before they were 26 they still may be eligible to apply.
3. What are the limits for contributions to an ABLE account? The individual states determine the total limit that can be contributed to one of these accounts. South Dakota has yet to write these rules. The federal regulations have not yet been released but are expected sometime in 2015. It appears that an annual contribution to the account of $14,000 per year should be available. It also appears that the first $100,000 held in the account is not counted against the $2000 SSI limit. The excess of $100,000 in an account would result in a suspension of the individual from eligibility for Medicaid. So there’s a trap to avoid. Anything left in the accounts after the death of the owner of the account will go back to the state who provided Medicaid benefits to such person.
4. What types of expenses can be paid from an ABLE account? The money in one of these accounts can be used to pay for “qualified disability expense,” which means any expense related to the beneficiary as a result of living with their disability. These expenses would likely include medical and dental care, education, employment training, housing, assistive technology, personal support services, healthcare expenses, financial management, and administrative services.
5. When will ABLE accounts be available? Although the president signed this act in December 2014, the Department of the Treasury still needs to establish the regulations before the states can begin to set up their own procedures. Once these regulations are set up by the federal government and the procedures are set up by the state governments these accounts should become available. So it is impossible to give a specific time frame, knowing the pace of government.
A great thing about these accounts is the money in the account can grow tax-free. Another benefit is that the money can be accessed on a tax-free basis for a qualified expense. These accounts could be a valuable resource for disabled individuals and their families. We are still waiting for regulations to be adopted, but now is probably the time to begin thinking about whether an ABLE account is a good fit for the circumstances in your family.
It’s never too soon to start thinking about helping your family. So if you think a plan like this might be good for your circumstances please give me a call or send an email.
I would love to help you!