In December 2014, the Achieving a Better Life Experience (ABLE) Act was signed into law authorizing individuals with disabilities to open tax-exempt savings accounts to save for disability-related expenses without impacting current or future eligibility for resource-based benefits. As a result, individuals with disabilities can save more than a total of $2,000 in assets in their name in a qualified ABLE account.
An eligible Individual of any age—children, transition-aged youth, and adults—can open an
ABLE account at any time if the eligible disability exists at the time an account is opened.
To determine if someone is an eligible individual, please go to https://www.ssa.gov. You do not need to receive public benefits to be eligible.
The eligible individual is the account owner and the beneficiary of the assets in the account.
There is no age limit to open or use account assets, however, the onset of the disability must have occurred before age 26.
Money in an ABLE account is used to pay for future Qualified Disability Expenses. Only one ABLE account can be open at a time in any ABLE plan nationwide.
Any person can contribute to an ABLE account—family, friends, a trust or estate, partnership, association, company or a corporation. No matter who contributes, the account owner or legally authorized representative controls the account. However, assets in the account belong to the account owner.
The ABLE Act places limits on the amount that can be contributed annually and the total account balance. Total contributions made into an account, regardless of who made the contribution, cannot exceed $14,000 in 2017.
It wouldn’t make sense to invest in an ABLE plan if it affects existing benefits. Any amount of assets in an ABLE account is an excluded resource for Medicaid. Account balances up to and including $100,000 will be disregarded for purposes of determining eligibility to receive resource-based benefits. Contributions to and money taken out of an ABLE account are not in the calculation that determines eligibility for certain resource-based benefits, like SSI, SNAP, and Medicaid.
All withdrawals will be considered to be withdrawn to pay for Qualified Disability Expenses (QDE). QDEs include basic living expenses and are not limited to items for which there is a medical necessity or which solely benefit a disabled individual. QDEs can be related to enhancing the account owner’s quality of life. More details can be found at www.enablesavings.com.
Withdrawing is simple and flexible. Money withdrawn from an ABLE account can be sent:
By check to the account owner, or to a third party;
Electronically to a personal bank account on file with the plan; or
Pre-scheduled withdrawals can be set up to send money automatically to an individual or company (for example, to pay for rent).
Save on Taxes
The earnings on contributions grow tax-free while invested, and tax-free if withdrawn for Qualified Disability Expenses. That means contributions may grow more quickly than assets in a taxable account.
Estate tax benefits
Contributors (other than by the account owner) can lessen the value of a person’s taxable estate. Contributions to an account are considered a completed gift from the contributor to the account owner. In 2017, contributions up to $14,000 per year are eligible for the gift tax annual exclusion.
ABLE and Special Needs Trusts (SNTs)
ABLE accounts are an added way to save for individuals with disabilities so they can live and thrive independently for a lifetime. ABLE accounts and SNTs can be used together to provide for your client’s financial security.
How ABLE and a SNT can work together:
Opening an ABLE account instead of a Special Needs Trust. Your client would avoid the trust’s higher opening minimums and tax on the earnings (subject to compressed trust tax rates up to 39.6%), along with legal fees to set up and manage a trust.
Opening an ABLE account and a Third-Party Special Needs Trust. Encourage your client to invest up to the maximum limits in an ABLE account and use the assets first as expenses occur to enjoy the tax benefits. Additional funds can still go into the trust.
Supplementing a trust with an ABLE account. If permitted, your client should consider annually withdrawing up to $14,000 (in 2017) from the trust to deposit directly into an ABLE account.
ABLE Accounts like the Enable Savings Plan, offered by Nebraska, can be a very beneficial tool for developing a financial plan for a family that has a loved one with a disability. Visit www.enablesavings.com to learn more.
Joanna Swanson is Head of Direct Sales, Savings Plans for First National Bank. She can be reached at firstname.lastname@example.org.