After eight long fought years, the Achieving a Better Life Experience (ABLE) Act became law in December 2014. The ABLE Act grew out of an idea from several parents from the Down Syndrome Association of Northern Virginia who, sitting around a kitchen table, identified the inequities and injustices that exists in the “system” as it relates to the ability for individuals with disabilities and their families to save for the future.
The idea was to create a savings mechanism for people with disabilities that could be used for disability-related expenses, recognizing that many of these expenses are not covered by Medicaid and other public programs. This is a serious concern for parents of disabled children, wondering how these expenses will be paid when they are no longer living.
The ABLE Act is modeled after 529 College Savings Plans and is under section 529A. So plans under the ABLE Act will be called 529A plans or 529A accounts.
ABLE accounts will not affect the disabled person’s eligibility (generally resources of no more than $2,000) for SSI, Medicaid and other public benefits. Contributions to the account grow tax-free and withdrawals for disability expenses are also tax-free.
The total annual contribution to an ABLE account, by all participating individuals, including family and friends, is $14,000. This is the same amount as the annual gift tax exclusion (the amount you can give someone and not file a gift tax return) and will change with a change in the annual gift tax exclusion. The total amount (not just the annual amount) that can be made to an ABLE account will equal Iowa’s limit for education-related 529 savings accounts. However, for individuals with disabilities who are recipients of SSI and Medicaid, the ABLE Act sets some further limitations. The first $100,000 in an ABLE account is exempted from the SSI $2,000 resource limit. If and when an ABLE account exceeds $100,000, the disabled person is suspended from eligibility for SSI benefits and will no longer receive that monthly income. However, the beneficiary will continue to be eligible for Medicaid. Of course, Estate Recovery will be able to recoup expenses paid by Medicaid from the ABLE account upon the death of the disabled person.
Eligibility is limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age.
A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. These include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses.
These are described in more detail in regulations that have just been released by the Treasury Department.