"ABLE" Law Provides Big tax Benefits for Disabled
Attached to the tax extension laws that were passed at the end of 2014 by Congress was a bill to create a new tax preferred savings vehicle. For those who are supporting individuals with disabilities, the “Achieving a Better Life Experience (ABLE) Act introduces a new type of tax advantaged savings account that is specifically designed to address some challenges faced by these individuals regarding the amount of assets they can have in order to not reduce Social Security, Medicaid, etc.
As long as the guidelines established by the ABLE Act are followed these people now have a viable method of meeting future expenses without risk of disqualification form the federal means tested programs upon which many disabled individuals currently rely.
THE ABLE Act modifies these rules to allow qualified individuals to accumulate up to $100,000 in the ABLE account without becoming disqualified from receiving social security benefits (above and beyond the traditional $2000 resource limit). Medicaid benefits will not be impacted regardless of how much the individual deposits into the ABLE account.
ABLE accounts will be modeled after the IRC Section 529 college savings type plans so that after tax funds are contributed to the account and those funds grow tax free and distributions are tax free for qualified expenses such as health care, housing, transportation and job training for the beneficiary disabled person. IF funds are used for expenses that are not qualified then there will be a 10% penalty tax plus regular income tax. States will be setting up sponsorship arrangements with investment companies similar to as they have done with the college 529 plans. Only one ABLE account will be allowed per beneficiary disabled person. However, these accounts can be rolled to another ABLE account or for a sibling who meets the eligibility requirements for a disabled person.
More will be coming as states set these plans up with investment companies.
Properly structured trust accounts are also used to provide funds for disabled persons in order to not disqualify them from federal and / or state assistance. If you have need of planning for a disabled person please contact me to discuss your needs and goals.