Achieving a Better Life Experience (ABLE)

There is welcome news for people with disabilities and their families.

In December 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law. Since 2014, the ABLE Act, which sailed through Congress with overwhelming bi-partisan support, has been signed into law in a record 47 states, including in Connecticut and New York.

As those with disabilities and their families know all too well, qualifying for means-based public benefits programs requires the recipient to be poor – one can have no more than $2,000 in assets ($1,600 in CT). While public programs such as SSI and Medicaid provide vital services, they cannot nearly provide for all of the needs of a disabled person. Living with disabilities is expensive, and many families fret about how to meet the supplemental needs of their disabled loved ones.

The ABLE Act will provide a new tool for supplementing income of a disabled person receiving public benefits, without jeopardizing eligibility for those public benefits. Similar to the 529 Education Savings Plans, where families can set aside money for higher education, the new ABLE 529A plan enables the creation of tax-free savings vehicles for qualified individuals with disabilities.

Basic facts are presented below in a question and answer format.

How much can be contributed annually to an individual ABLE account? Total annual contributions to an individual’s account by the beneficiary, family or friends may not exceed $14,000, or the current annual gift exclusion amount. Contributions must be made in cash.
How can a person qualify to be a beneficiary under an ABLE account? An individual who has a documented and diagnosed significant disability, or is blind, PRIOR to turning 26 is eligible providing (1) he or she currently receives SSI or SSDI; or (2) the beneficiary can certify, under penalty of perjury, that he or she meets the qualification standards (stated above in this paragraph), and has a signed physician’s diagnosis that can be provided to the ABLE program or the IRS upon request. While the disability must have been diagnosed before age 26, an ABLE account may be opened at any age, including for those above age 26.
How much money can be put into an ABLE account? Although the amount that may be contributed to an ABLE account is equal to the limit for State higher education related 529 accounts (currently $300,000 in CT and $375,000 in NY), SSI benefits will be suspended once the account reaches $100,000. Should the account go below $100,000 at a later date, SSI benefits will be reinstated. Medicaid benefits, on the other hand, continue and remain in effect even after the $100,000 mark is reached.
What sorts of qualified expenses can the ABLE account pay for? Broadly, qualified expenses are any expenses related to the Beneficiary as a result of living with a disability. Such expenses may include education, transportation, housing (but distributions for housing may reduce SSI payments), employment support and/or training, assistive technology, personal support services, health and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.
Who will be taxed on the money in the ABLE account? Assets in the ABLE account grow tax-free, just as they do in 529 accounts. No gift tax is due for contributions, because the total annual contribution may not exceed the gift tax exclusion amount. As long as the payouts are used for qualified expenses (see 4 above), the payouts are tax free. These are the basic rules that apply if contributions are kept within annual and overall limits.
Who will administer the ABLE accounts? In most states, the accounts will either be administered by the State Treasurer or by the State 529 Plan Administrator. Connecticut has not yet set up an ABLE account mechanism, and it is rumored that it may join a consortium of other states to run its program.
Who owns the ABLE account? The designated beneficiary owns the ABLE account. The account must be set up and controlled by the designated beneficiary, legal guardian or through a Power of Appointment.
Can a person benefit from more than one ABLE account? No, a person may only have one ABLE account for his or her benefit.
Where can I set up an ABLE account? An ABLE account can be set up in any State that runs a 529A program and authorizes out-of-state persons to set up a an account. On June 1, 2016, Ohio became the first state in the nation to launch its own ABLE account. Eligible individuals nationwide (including Connecticut and New York residents) may set up an online account through the Ohio program at http://www.stableaccount.com. Once ABLE programs become available in multiple states, as is widely expected, one will be able to shop around for a program that offers competitive terms.
Once an ABLE account is established, may I roll it over it into another ABLE account? Yes. Although a beneficiary may have only one account, transfers can be made by establishing a new qualifying ABLE account, and rolling over the assets, free of penalty, to it. Similarly, assets may be transferred from an ABLE account to that of another qualifying relative.

All in all, this is good news.

Is there a downside? Yes, the ABLE Act contains a payback provision. Any funds remaining in the 529A account at the death of the beneficiary must be used to repay the State for any Medicaid assistance received by the beneficiary after the account was created. Medicaid expenses, however, are paid only after other qualified expenses, such as funeral expenses, are paid.

With an estimated 5.6 million people eligible to become beneficiaries of an ABLE account, these accounts are a welcome addition to help plan for the needs of a disabled person. Once ABLE accounts become widely available, they will add an attractive option to families or individuals who seek to supplement the lives of a disabled person without sacrificing needs-based government benefits. With lower costs, fewer administrative burdens, as well as favorable tax-free growth within the account, the ABLE account offers a good alternative or additional option to a Special Needs Trust.

Please note that the federal government and state regulations are still evolving and there will be ongoing modifications to the information provided above.