The Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act was signed into law on December 19, 2014. It aims to alleviate the financial burden that’s faced by individuals with disabilities by introducing tax-free savings accounts to cover qualified disability expenses. Let’s take a look at these accounts and how they work.
What’s an ABLE account?
Modeled after college savings accounts, ABLE accounts are tax-exempt 529A savings accounts. The funds in ABLE accounts must be used exclusively for qualified disability-related expenses of the owner, or the designated beneficiary. This enables individuals with disabilities to save for their future needs.
Today, 18 years after the passing of the ABLE Act, 46 states, including Minnesota, offer ABLE programs. The nationwide investment in ABLE accounts exceeds $100 million.
Why were ABLE accounts established?
Aside from offering individuals with disabilities a tax-advantaged savings account, ABLE accounts allow them to continue being eligible for various government programs. Eligibility for many public benefits, including SNAP and Medicaid, require the recipient to remain at a predetermined income level with little accumulated savings in their name. As long as the balance in an ABLE account does not exceed $100,000, the funds do not have to be reported, and the savings do not affect their eligibility for government programs.
The designated beneficiary of an ABLE account must be:
- eligible for Supplemental Security Income (SSI) based on disability or blindness that began before age 26,
- entitled to collect disability insurance benefits (DIB), childhood disability benefits (CDB), or disabled widow’s or widower’s benefits (DWB) based on disability or blindness that began before age 26; or
- an individual who has certified, or whose parent or guardian has certified, that they have met the criteria for a disability certification before age 26.
An individual who meets the eligibility criteria described above may only have one ABLE account.
Like all tax-deferred savings accounts, there are limits on the amount of contributions you can make to an ABLE account each year. Typically, contributions for an ABLE account may not exceed the annual gift tax exemption ($16,000 for 2022). However, if the beneficiary is working, and they or their employer are not contributing to a retirement plan, they can contribute an additional amount equal to the lesser of their annual gross income or the individual Federal Poverty Level ($13,590 for an individual in the continental U.S. as of 2022).
Distributions taken from ABLE accounts can only be made for the benefit of the designated beneficiary. Any individual with signature authority can establish and control an ABLE account for a designated beneficiary.
Distributions can be taken to help cover any qualified disability expense (QDE), or any expense related to the beneficiary’s disability, including:
- Employment training and support
- Assistive technology and related services
- Health care expenses
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Funeral and burial
- Basic living expenses
Anyone can deposit funds into an ABLE account.
What happens to the funds in the ABLE account when the beneficiary passes away?
Upon the death of the designated beneficiary of an ABLE account, the state in which the beneficiary lived may file a claim to all, or a portion, of the funds in the account, equal to the amount the state spent on the beneficiary through their Medicaid program. This is known as the
Medicaid Payback provision. The claim helps the state recoup Medicaid-related expenses from the time the account was opened. Of course, if the beneficiary had not been receiving Medicaid services during the period of time in which they had an ABLE account, the funds in their account would not be subject to the payback rule.
ABLE accounts can provide a tax-advantaged savings account to a person with a disability to help cover living expenses. Our Financial Advisors can assist you in setting up these important accounts.
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