Top Ten Things to Know about the ABLE Act

In December of 2014 The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was passed. This new legislation creates a new alternative for individuals with disabilities and their families to save funds for the future and maintaining eligibility for vital public benefits. Below is a list of the top ten highlights of the ABLE Act.

  1. The new ABLE Act legislation will allow states to establish and operate ABLE accounts. Eligible residents will be allowed to setup these special 529A tax-free savings accounts to help cover disability related expenses.
  2. Each state is charged with establishing and operating an ABLE program. In the event your state does not have its own program, it may be able to contract with another state to still offer the ABLE accounts to eligible individuals.
  3. Individuals must meet two criteria to be eligible:
  4. Age Requirement – must have been diagnosed as disabled before the age of 26
  5. Disability Diagnosis – have met the disability requirements for Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) or receive a certification that is equal to the SSI and SSDI guidelines.
  6. Each eligible individual is limited to one ABLE account.
  7. Total annual contributions cannot exceed the federal gift tax limit of $14,000. Contributions to the ABLE account can be made by multiple people– the account holder, family, and even friends.
  8. Qualified expenses from the ABLE account are those directly related to the beneficiary’s disability. These expenses include health care, education, housing, transportation, assistive technology, personal support and other qualified expenses.
  1. The first $100,000 in the ABLE account is excluded from SSI’s asset resource limitation of $2,000. This allows an individual to have up to $102,000 in the ABLE account and remain eligible for SSI.
  2. Income earned on the ABLE account is not taxed, and withdrawals from the account for qualified expenses are not taxable. Withdrawals made from the account for nonqualified expenses will be subject to income tax, plus a 10%penalty.
  3. ABLE accounts will not affect Medicaid eligibility. However, there is a payback provision to recoup payment for certain expenses paid by Medicaid upon the death on the beneficiary.
  4. The ABLE account provides individuals and family members who depend on public benefits such as SSI, SNAP Benefits, HUD Housing, and Medicaid the ability to establish a savings account without jeopardizing their public benefits.

Although legislation has been passed the ABLE Act is still in a phase of implementation. The IRS is currently working on further rules and regulations so that states can begin creating their ABLE programs. The availability and timing of the ABLE program will vary from state to state. We hope to see ABLE accounts available for business in early 2016. For those that need to maintain eligibility now may find that a pooled trust is a complementary option.

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