ABLE Accounts for Individuals with Disabilities

In late 2014, Congress passed the “Achieving a Better Life Experience Act” (the ABLE Act). This law enabled states to establish and operate ABLE programs so that individuals with disabilities can save money for their future needs while still retaining eligibility for federal assistance programs. These accounts can help pay for qualified expenses, such as education, housing, employment support/training, assisted technology, transportation, and health care (not covered by insurance).

The ABLE accounts (also called 529A accounts) are somewhat similar to 529 College plans. They are funded with after-tax dollars. Their investment gains are not taxed and there is a 10% penalty (as well as taxes due on gains) if the funds are not used for qualified disability expenses.

Unlike 529 College Savings Plans, however, you cannot obtain an ABLE account from another state. If you live in a state which does not have its own program for ABLE accounts, the state may contract with another state to provide them to its residents. Otherwise, you can only open an ABLE account in your state of residence.

To be eligible for an ABLE account, an individual needs to have become disabled before the age of 26. They also need to be receiving Federal benefits under Supplemental Social Security (SSI) or Social Security Disability Insurance (SSDI). Individuals who establish ABLE accounts can only have one account (unlike 529 college plans).

Contributions are limited to $14,000 per year (not to exceed state 529 limits). The first $100,000 in an ABLE account is not counted toward the $2,000 asset limit for SSI. However, distributions for housing would be treated as income for purposes of the SSI program. Upon the death of the individual, states would be required to recoup certain expenses paid by Medicaid. This is called the Medicaid payback provision.

There is a National Committee that is currently working out the details for ABLE accounts. A state work group is being formed to design Washington State’s version by November 1, 2015. Once the details are worked out, the Washington state legislature will consider a bill next session to finalize the program. Hopefully, sometime in 2016, families or adults with disabilities will be able to open an ABLE account.

In many cases, ABLE Accounts will probably not replace Special Needs Trusts. A Special Needs Trust, which was created by a third party using the disabled individuals own assets, is also subject to the state’s Medicaid payback provisions after the death of the disabled beneficiary. However, a Special Needs Trust created AND funded by a third party, for example the disabled beneficiary’s parents or other family members, is generally not subject to the Medicaid payback provisions. So, it would make sense to use a Special Needs Trust in this case rather than an ABLE account because assets can be inherited by surviving family members or other beneficiaries after the death of the disabled individual. In addition, a third-party Special Needs Trust is not limited in annual contributions or account balance limitations like an ABLE account.

Implementation of the ABLE Act is still a work in progress. Estimates are that the first ABLE Accounts in Washington State will be opened some time in 2016 and further information should be available in the near future.

As a mother of a young adult with special needs, Mary Ann recognizes the financial planning challenges faced by families with special needs children. She takes great pride in helping families quantify and plan for current and future needs. For families with special needs, financial planning is not an option…it is a necessity. If you have any questions or need help preparing for the future, please call Mary Ann.

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