ABLE ACT Accounts

The Achieving a Better Life Experience (ABLE) Act (P.L. 113-295) added Section 529 A to the federal tax code to enable eligible individuals with disabilities to save money in a tax-exempt account that may be used for qualified disability expenses while still keeping their eligibility for federal benefits. Earnings from ABLE funds grow tax-deferred and are tax-free if used for qualified disability expenses. Contributions to the account may be made by any person (the account beneficiary, family and friends) and may or may not be tax deductible depending on the specifics of the state ABLE law. Funds in the account may be used for many different types of expenses. The beneficiary is the owner of the account.

Under ABLE, eligible individuals and families will be allowed to establish ABLE savings accounts that will not affect their eligibility for SSI (up to $100,000.00), Medicaid and other public benefits. The legislation explains that an ABLE account will, with private savings, “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.” ABLE accounts provide a mechanism to essentially increase this $2,000.00 asset limitation.
Depending upon the state ABLE program’s procedures, the disability certification may be a form that a physician fills out or the ABEL program may simply require a letter from the physician providing certain information (such as the nature of the disability and date of onset). The potential ABLE beneficiary will then need to certify (under penalty of perjury) that he or she has obtained this certification prior to opening the ABLE account.
The total annual contributions by all participating individuals, including the beneficiary, family and friends, is $14,000 (the federal gift tax exclusion-this will be adjusted annually for inflation). The total limit of contributions that could be make to an ABLE account over time is tied to the individual state’s maximum amount for regular 529 accounts (typically around $350,000). The first $100,00 in ABLE accounts will be exempted from the SSI $2,000 individual resource limit. After $100,000, the beneficiary’s SSI will be suspended (but not terminated).
The federal law authorized state Medicaid agencies to become a creditor and seek reimbursement for the Medicaid services a beneficiary has received since he or she opened the ABLE account. All outstanding qualified disability expenses (e.g., burial costs) will be given priority over the Medicaid claims. The remainder of assets in an ABLE account after government payback will go to the beneficiary’s estate.

Common Questions:

1How will ABLE account beneficiaries access the funds in their ABLE accounts?

This will vary from program to program. Options will likely include using debit cards, setting up direct pay to service providers and/or having ABLE funds direct deposited into another bank account.

2When will ABLE accounts become available?

While most states will not launch their programs until 2017 or later, a few states are expected to open their programs in spring and summer of 2016.