Late in 2014, the ABLE (“Achieving a Better Life Experience”) Act was signed into law. The law is aimed at achieving a manner in which those with special needs can save money without losing needs based public benefits such as SSI or Medicaid . This is an important issue and, perhaps the greatest accomplishment of the Act is that it brings attention to this valuable community and addresses a serious struggle that they face. The fact that the ABLE act had strong bi-partisan support is encouraging for the special needs community and those who serve it.
While an ABLE account does not replace other tools, like special needs trusts, it is a tool that adds an option for us in serving our clients with special needs. In this issue of the our Newsletter, we will discuss the new law, when it applies, its limitations and its uses. We are hopeful this will give you a general understanding of the Act.
The ABLE Act Defined
An ABLE account may be established by any contributor (a parent, friend, family member or the person with a disability) for the benefit of an eligible beneficiary of any age so long as that person can establish they met the criteria prior to age 26. An eligible beneficiary is an individual who meets the standard for disability prior to turning the age of 26. A recipient of SSI or SSDI satisfies this requirement while those who do not receive such benefits must be certified under the act.
Financial Limitations on the ABLE Act
The first such limitation deals with the annual contribution amount, which may not exceed the annual gift-tax exclusion amount (currently $14,000). In addition, ABLE accounts may only accumulate aggregate contributions up to the state’s limit on qualified tuition programs (i.e. 529 accounts), which ranges between $300,000 and $400,000. And, finally, SSI exempts only the first $100,000 of an able account. Therefore, if an individual receives SSI, his or her ABLE account may not exceed $100,000 and he/she may have other assets up to only $2,000. Otherwise, the individual will become ineligible to continue receiving SSI, but can remain eligible for Medicaid.
In addition, earnings on the ABLE account are not taxable to the contributor or to the beneficiary. Contributions, however, are made from post-tax income.
Finally, assets in an ABLE account may be rolled over to another ABLE account for the benefit of another qualified
Uses of the ABLE Act
Persons with disabilities who are employed may want to utilize an ABLE account to save a portion of their income while remaining qualified for SSI. In addition, families may want to contribute to an ABLE account for their loved ones with disabilities in smaller increments. These same families may also desire to use other tools available such as Special Needs Trusts, which may be more flexible.
On the other hand, the ABLE account will not be useful for people who have become disabled due to an accident and who are receiving a judgment or settlement for a significant amount. And, it doesn’t work for a person with special needs in receiving a large inheritance. There are several other instances where an ABLE account is not the answer.