Able Accounts For Individuals With Disabilities
Written by Mary Ann Ferreira, CFP®, CDFA™, AIF®
In late 2014, Congress passed the “Achieving a Better Life Experience Act” (the ABLE Act). This law makes it possible for states to establish and operate ABLE programs so that individuals with disabilities can save money for future needs, while still retaining eligibility for federal assistance programs. These accounts can help pay for qualified expenses, including education, housing, employment support/training, assisted technology, transportation, personal support services, financial management, health care (not covered by insurance) and other expenses that help improve health, integration and quality of life.
ABLE accounts (also called 529A accounts) are somewhat similar to 529 College plans. They are funded with after-tax dollars, their investment gains are not taxed, and there is a 10% penalty (as well as taxes due on gains) if the funds are not used for qualified disability expenses.
WHO IS ELIGIBLE?
To be eligible for an ABLE account, an individual must have become disabled before the age of 26. They also need to be receiving Federal benefits under Supplemental Social Security (SSI) or Social Security Disability Insurance (SSDI). An individual may be eligible to open an ABLE account if he or she is not a recipient of SSI and/or SSDI, but they would still need to meet the age-of-onset (26) requirement, satisfy the social security definition/criteria regarding significant functional limitations, and receive a letter of certification to that effect from a licensed physician.
LIMITS ON CONTRIBUTIONS
Individuals who establish ABLE accounts can only have one account (unlike 529 college plans). Contributions to an ABLE account are limited to $15,000 per year (not to exceed state 529 limits). This number may be adjusted periodically in the future to account for inflation. The first $100,000 in an ABLE account is not counted toward the $2,000 asset limit for SSI. However, ABLE distributions for housing would be treated as income for purposes of the SSI program. Upon the death of the individual, states are required to recoup (from the ABLE account) certain expenses paid by Medicaid. This is called the “Medicaid payback provision.”
Washington state is still working out the details of its ABLE accounts, but they are expected to be available sometime in the summer of 2018. If you need to open an account immediately, we suggest that you open an account with the State of Oregon’s “Able for All” program, and then transfer the account to Washington once theirs is available. Washington is modeling its ABLE accounts after the Oregon program.
WILL ABLE ACCOUNTS REPLACE SPECIAL NEEDS TRUSTS?
In many cases, ABLE Accounts will not replace Special Needs Trusts. A Special Needs Trust that was created by a third party, but using the disabled individual’s own assets, is still subject to state Medicaid payback provisions after the death of the disabled beneficiary. However, a Special Needs Trust created and funded by a third party— for example, the disabled beneficiary’s parents or other family members—is generally not subject to the Medicaid payback provisions. Thus, if possible, it would make more sense to use the latter type of Special Needs Trust than to use an ABLE account, because remaining assets can be inherited by surviving family members or other beneficiaries after the death of the disabled individual. In addition, a third-party Special Needs Trust is not limited in annual contributions or account balance limitations, as an ABLE account is.
Mary Ann Ferreira is a Certified Financial Planner™ practitioner and a Certified Divorce Financial Analyst™ with expertise in the unique aspects of financial planning for families who have children with special needs. As a mother of a young adult with special needs, Mary Ann recognizes the financial planning challenges faced by families in this situation. She takes great pride in helping families quantify and plan for both current and future needs. For families with special needs, financial planning is not an option…it is a necessity. If you have any questions, or need help preparing for the future, please call Mary Ann.