For those of you that may be disabled, or have a disabled loved one, a recent congressional act has created a new tool that may assist in your day to day lives. ABLE accounts, created by the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 (otherwise known as the ABLE Act), are tax-advantaged savings accounts for individuals with disabilities. Contributions to the account may be made by anyone, and any income earned by the accounts will not be taxed.
The ABLE Act was introduced by Congressman Ander Crenshaw (R-FL) in February 2015, and signed into law December 2015 as part of the Tax Extenders package. The legislation was co-sponsored by 380 members in the House, and 78 members in the Senate, garnering broad bipartisan support.
ABLE accounts allow any individual or individuals to make up to $14,000 (total for all contributors) in annual nondeductible contributions. To be eligible to start an ABLE account, the beneficiary must have been disabled prior to their 26th birthday. Distributions from the account are tax-free for qualified expenses. A significant advantage of the ABLE account is that it does not affect Medicare eligibility, and accounts with a balance of less than $100,000 will not affect Supplemental Security Income (SSI cash benefits are suspended once the account goes over $100,000, but are reinstated when the balance falls back below $100,000).
Individuals with disabilities can only have $2,000 in assets at any given time in order to remain eligible for many federal means-tested benefits programs which provide much-needed supports, such as Social Security Income, according to the National Down Syndrome Society (NDSS). Under ABLE, eligible individuals and families will be allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid and other public benefits. ABLE accounts provide a mechanism to essentially increase this $2,000 asset limitation so that individuals with disabilities and their families can save money for their future and to improve their quality of life. Also, income earned by the accounts is not taxed.
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| Ander Crenshaw (R-FL) introduced the ABLE Act, which garnered broad bi-partisan support with 380 House and 78 Senate Co-Sponsors |
A wide variety of expenses may be paid for from the account, provided they are considered a qualified disability expense. A qualified disability expense means any expense incurred by the beneficiary as a result of living with a disability. Qualified expenses may include: education, housing, transportation, personal assistance services, assistive technology, employment training and support, financial management and administrative services, health care not covered by insurance/Medicaid/Medicare, and other expenses which help improve health, independence, and/or quality of life.
If you’re disabled before age 26 and already receiving SSI or SSDI, you are automatically eligible to establish an ABLE account. If you’re not already receiving SSI/SSDI, you may still qualify. Those who are not recipients of SSI or SSDI but still meet the age of onset disability requirement will be eligible to open an ABLE account upon obtaining a disability certification from their physician. Depending upon the state ABLE program’s procedures, the disability certification may be a form that a physician fills out or the ABLE program may simply require a letter from the physician providing certain information, such as the nature of the disability and date of onset.
You do not have to enroll in your state of residency’s ABLE plan – you may enroll in any state’s plan that accepts out-of-state residents. States that currently accept out-of-state residents are Ohio, Nebraska, and Tennessee; Florida is only accepting in-state residents at this time. These are the only four states currently offering ABLE plans, but more are coming in the near future.
ABLE accounts may be established with varied investment strategies, much like a 529 college savings plan. Investments may be changed up to twice each calendar year.
In the event funds are used for non-qualified expenses, the earnings portion of the funds withdrawn will be treated as income, taxed at the designated beneficiary’s tax rate, and subject to a 10% federal tax penalty. The additional income may also jeopardize the beneficiary’s SSI and Medicaid/Medicare benefits.
These are the four state plans currently in operation:
- Ohio – “STABLE Account” program. The beneficiary can request a “STABLE card” that works similar to a debit card, and can be used to pay for qualified expenses. Those contributing may choose to invest among four mutual fund based investments and one FDIC-insured investment. The lifetime limit for the account balance is $426,000. Once this limit is reached, contributions may no longer be made, although the account can continue to accrue earnings. If the balance falls below the lifetime limit, contributions may resume.
- Nebraska – “Enable Savings Plan” program. With four investment plans to choose from, this plan is very similar to Ohio’s. Checking and debit card options will be available at the end of 2016. The lifetime limit for these accounts is $360,000.
- Tennessee – “ABLE TN” program. Contributors may select from 14 investment options. Currently, withdrawals can only be made via an online account portal, and can take five to ten business days to be issued. The lifetime limit for Tennessee’s program is $350,000.
- Florida – “ABLE United” program. This program is for Florida residents only. Contributors may choose to invest in three predesigned portfolios or build their own portfolio among four fund options. Withdrawals may only be made online, via either an electronic transfer (free) or via paper check. The paper check can be issued to a third party, and the first two each month are free ($5.00 per check thereafter). The lifetime limit for these accounts is $418,000.
There are a few bills in Congress currently that would improve the accessibility and functionality of ABLE accounts. “Although ABLE is a game-changing law for many individuals with disabilities and their families, it can be improved upon in many ways,” says Debes. These includes the ABLE Work Act (allowing those who work to contribute more than the $14,000 annual limit), the ABLE Financial Planning Act (which would allow the rollover of conventional 529 accounts into ABLE accounts), and the ABLE Age Adjustment Act (which would increase the age of disability onset to 46).
With most states planning to roll out their own ABLE programs (including Texas), the list of choices is sure to expand. Be sure to research the available programs to see which work best for your situation. For more information, go to www.ablenrc.org, which has many resources for those looking to start an ABLE account.