On December 23, 2014, President Obama signed into law the Achieving a Better Life Experience (ABLE) Act which promises to help individuals with disabilities and their families save for disability-related expenses and proactively plan for their futures. The ABLE Act allows a single tax-free savings account to be established for individuals who were disabled before the age of 26. These individuals could save $14,000 per year to pay for future health-care costs, housing, lifelong education, transportation, and other necessary expenses. Anyone will have the opportunity to contribute to these accounts as long as total contributions do not exceed $14,000 annually. Additionally, individuals will not forfeit their eligibility for Medicaid, Social Security Income (SSI), or other governmental benefit programs.
Highlights:
- Medicaid Payback
- One account permitted
- Annual deposits cannot exceed gift tax annual exclusion
- Contributions may be made by any person
- Contributions are not tax deductible
- Income earned on account balances is not taxed, subject to exceptions
- Withdrawals for qualified expenses are not taxable
- Aggregate contributions subject to overall limit matching the State limit for Section 529 Accounts
- Allowable Contributions
- Qualifying ABLE Programs may only accept cash contributions or rollovers from one beneficiary to another family member beneficiary
- Distributions for Qualified Disability Expenses are not taxable:
o Education
o Housing
o Transportation
o Employment Training and Support
o Assistive Technology and Personal Support Services
o Prevention and Wellness
o Financial Management and Administrative Services
o Legal Fees
o Expenses for oversight and monitoring
o Funeral and burial expenses
- Qualified ABLE Program accounts must provide a separate accounting for each designated beneficiary
- Designated beneficiaries are permitted to direct investment of account contributions only twice per year
- ABLE Accounts must be opened in the State the beneficiary resides
- States have the option to participate
- Qualified ABLE Programs must be established and maintained by the State or an instrumentality of the State
- Monthly electronic submission of distributions and account balances shall be made to the Social Security Administration
David S. Banas
Hickman & Lowder Co., L.P.A.