What is the ABLE Act and how will it help me? An Article from Hinkle, Fingles & Prior

April 1st, 2015

An article from the Hinkle, Fingles & Prior Law and Disability E-Newsletter

The Achieving a Better Life Experience (ABLE) Act was recently signed into law by President Obama.   This is an exciting development in special needs planning and the act will likely give families a helpful tool in planning for the future of their child with a disability.  Despite this fact, there are many pitfalls of which families should be aware.  The ABLE Act is designed to create “tax-free” savings accounts for individuals with disabilities.  At this point, federal regulations will be developed and individual states will start to implement the Act.
ABLE accounts are much like 529 accounts for college savings and will have the same tax advantages as 529 savings accounts.  ABLE accounts are designed to be funded with “after-tax” money, but the earnings in the account will not be subject to Federal income tax (although the earnings may be subject to state income tax).  Also, there will be no tax when the money is taken out and used for education, housing, transportation, health aides, employment support, and other similar expenses      

An important feature of ABLE accounts is that they are designed to supplement but not replace other means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid.  As a result ABLE accounts which meet the required guidelines should not interfere with government assistance benefits.  However, there are some very important limitations to ABLE accounts. An individual will only be able to have up to $100,000 in an ABLE account and still qualify for SSI.  If an individual has over $100,000 in an ABLE account, they will not be eligible to receive a SSI benefit,  but will still be eligible for Medicaid.  Given the life expectancy of most individuals with disabilities, families should not rely upon ABLE accounts as their sole strategy in securing their child’s financial future.  

In addition, most families do not realize ABLE accounts   provide that Medicaid and other government health care providers will receive the money remaining in the ABLE account after the beneficiary dies.  There will also be limits on how much money can be put into an ABLE account each year (currently $14,000 per year), and an individual will not be allowed to have multiple ABLE accounts.  Finally, in order to qualify for an ABLE account an individual must be blind or disabled as defined by the Social Security Administration, and the disability must have occurred before the age of 26.

While an ABLE account will likely be a nice savings vehicle, because of their limitations, they will not be a one-size-fits-all solution for individuals with disabilities.  It will still be more advantageous for families to create special needs trusts to help preserve a child’s future.  To learn more about the benefits and purposes of special needs trusts, please see our other articles on this topic at http://hinkle1.com/category/special_needs_trusts/