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ABLE Accounts: What You Need to Know
Published October 24, 2017
By Ryan J. Byrnes, Esq., Littman Krooks LLP
The purpose of the ABLE program is to assist individuals with disabilities with saving funds in accounts to better enhance their quality of life. The program is intended to supplement, not supplant, government entitlements, such as Medicaid and SSI. Distributions from the account can be used to pay for qualified disability expenses, including education, housing transportation and health. Here are some answers to some frequently asked questions:
What is an ABLE account?
- An ABLE account is a tax-advantaged savings account that an eligible individual can use to save funds for qualified disability-related expenses for the account’s designated beneficiary. Similar to a 529 College Savings Account, a 529A ABLE account encourages and assists individuals and families to save private funds to support individuals with disabilities. The funds in the ABLE Account are intended to supplement, but not supplant, benefits provided through Medicaid, SSI, SSDI, private insurance and other sources.
Who qualifies as a designated beneficiary?
- A designated beneficiary is one who is currently receiving SSI or SSDI because of their disability; or, if not receiving such benefits, can provide certification to meet the criteria for a disability; and such disability or blindness occurred before the age of 26.
Who can create an ABLE account?
- The designated beneficiary can create and manage an ABLE account if they have capacity or, alternatively, parents, conservator/guardian, agent under a Power of Attorney can create the account. However, coordination of the account is critical as only one ABLE account is permitted per designated beneficiary.
Who can contribute to an ABLE account?
- Any person, including the designated beneficiary, family member or friend may contribute to an ABLE account.
How much can be contributed to the ABLE Account?
- The annual contribution cap per ABLE account is limited to the annual federal gift tax exclusion (currently, $14,000). Contributions are not income tax deductible to the contributor(s), but the growth in the ABLE account is not taxed provided distributions are made for qualified disability expenses. However, contributions do qualify for federal annual gift tax exclusion. ABLE account contributions must be made in cash from the contributor’s after-tax income. Total contributions over time are limited to a state’s 529 maximum. If a designated beneficiary is also receiving SSI, any amount in excess of $100,000 will be considered “resources” under SSI.
How is the account managed?
- Each state program designates their own investment options and most programs are open to residents from other states. Changes to investment options may be made twice annually and, just like stocks, investment options range from conservative to aggressive. A checking account and debit card are also offered.
What can ABLE account be used for?
- An ABLE account must be used for “QDE” or qualified disability expenses, which is any expense related to the designated beneficiary’s blindness or disability that assists him/her in increasing or maintaining their health, independence and/or quality of life. Examples of QDE are: housing (mortgage, taxes, rent, and utilities), education, transportation, employment training and support, assistive technology and related services, health including prevention and wellness. Additional examples include: financial management and administrative services, legal fees, expenses for ABLE account oversight and management, funeral and burial expenses and basic living expenses.
What is the Medicaid payback on designated beneficiary’s death?
- Upon the death of the designated beneficiary, any amount remaining in the account will be subject to Medicaid payback for payments made by Medicaid on behalf of the beneficiary after the date of establishment of the account.
What are the advantages of ABLE accounts?
- An ABLE account promotes self-sufficiency for an individual with a disability who cannot contribute to an employer savings plan due to potential of jeopardizing access of critical benefits. The funds in the account are not taken into consideration when determining eligibility for means-tested federally funded benefits such as SSI and Medicaid.
What are the disadvantages of ABLE accounts?
- Only one ABLE account per designated beneficiary is permitted. Total contributions in a year are limited and total contributions over time limited to state’s 529 maximum and any amount in excess of $100,000 will be considered “resources” under SSI. The ABLE account contains a Medicaid payback provision for any services rendered since the establishment of the account. ABLE accounts provide for limited investment discretion and cannot be opened for an individual who becomes disabled after the age of 26.
Read more about special needs planning. Compare ABLE Accounts vs. Special Needs Trusts by clicking here.
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