ABLE Act and Special Needs Estate Planning
The Achieving a Better Life Experience (ABLE) Act was signed into law in December of 2014. The purpose of the Act is to provide individuals and families the ability to finance disability needs tax-free. The savings the ABLE Act can provide is similar to the 529 education savings plan. The ABLE Act allows families to save up to $100,000 in a special account to pay for disability-related care without risking eligibility for benefits such as Medicaid or Supplemental Security Income (SSI) because these assets aren’t counted towards the need-based asset thresholds for these programs. To be eligible for an ABLE account, the beneficiary must be someone who had an onset of disability before age 26, and they will either receive Social Security Disability Insurance (SSDI) or file a disability certification under IRS rules. The beneficiary doesn’t have to be under age 26 at the time the ABLE account is set up. But the beneficiary must have a disability by age 26 to qualify.
With an ABLE account, the expenses which are exempted from taxation include education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses. Further, states may choose to approve other expenses under their own regulations. So be sure to check your state’s ABLE Act approved expenses for all exemptions listed.
Common ABLE Act Questions Answered
What happens if my account value exceeds $100,000?
If the assets in an ABLE account exceed $100,000, then the beneficiary’s SSI benefit payments will be suspended until the account value returns to below the $100,000 threshold. When the account value returns to under the $100,000 threshold, the SSI benefit payments will automatically resume with no need for re-application.
The assets held in an ABLE account will not affect Medicaid eligibility, even if their worth increase above the $100,000 threshold.
How does an ABLE account work?
Any earnings made in the account from contributions will accumulate tax-free at the federal level if the earnings are used to pay for disability-related expenses. This may also be true for your state, depending on the state you live in. If the funds are used for non-qualified expenses, then the earnings portion of the withdrawal will be taxed at one’s normal rate and subject to a 10% federal penalty. There are no federal tax breaks for contributions made into the account, only the earnings are tax-deferred. States have the option to provide tax incentives for contributions. The state-run Medicaid agency may also have the right to claim a reimbursement up to the value of the Medicaid services provided to the beneficiary, in the event that the beneficiary of the account dies.
Is the ABLE account program available in all states?
As of 2018, the ABLE Act account is available in 35 states and the District of Columbia. If you live in a state that doesn’t offer an ABLE account, you can still take part in the program. Anyone may enroll in another state’s ABLE account program, even if one’s home state offers an ABLE program. The only stipulation is that the state must make it known that they are accepting out-of-state resident applications.
Are there limits on how much I can contribute to an ABLE account?
As of 2018, the total annual contributions allowed into an ABLE account must not exceed $15,000, including contributions made by friends and family. The total contribution limit for an ABLE account differs by state, but remember, if the value exceeds $100,000, SSI payments will be suspended.
Tax Bill Update
On December 22, 2017, President Trump signed H.R 1, the Tax Cuts and Jobs Act, into law. Three provisions in the tax reform bill impact state ABLA programs as follows:
- Rollovers from 529 college savings accounts into 529A (ABLA) accounts, up to the annual maximum contribution amount, are now permitted under federal law. The state tax treatment of these rollovers is currently being determined by each state.
- Account owners who work and earn income are permitted to make contributions into their ABLE accounts in excess of the $15,000 annual contribution limit under certain circumstances. The designated beneficiary (ABLE account owner) is responsible for ensuring compliance with the ABLE contribution limits. State ABLE programs are in the process of implementing these changes and will provide updates accordingly.
- The Federal Tax Savers Credit has been extended to include contributions to ABLE accounts with some limits.
Please consult with your tax advisor for any specific guidance tailored to your situation.
For more information regarding the ABLE Act, please contact Nevada Aging and Disability Services at (888) 609- 8916 or head to http://nv.savewithable.com.
The ABLE Act can be a life-changing savings vehicle for those with special needs and their families. If you would like to learn more about the ABLE Act in Nevada, or have questions about anything you just read, please contact the Michaelson & Associates law firm at 702-731-2333.