Signed into law in December 2014 by President Obama, the Achieving a Better Life Experience (ABLE) Act amends Section 529 of the IRS Code of 1986 to create tax-free savings accounts for individuals with disabilities. The bill aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing and transportation. The bill supplements, but does not supplant, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment and other sources.
The details and timing of ABLE program availability will vary by state, as each must pass their own ABLE bills to establish the program for their residents. The Washington governor signed the bill into state law on May 1, 2015.
Information about the Program:
The ABLE program is operated by the states.
Individuals are limited to one ABLE account.
Contributions to the ABLE account can be made by any person. However, there is an annual cap on the amount individuals may contribute to an ABLE account.
Income earned from the ABLE accounts will not be taxed, and withdrawals from the accounts for qualified expenses are not taxable. Withdrawals made for ineligible expenses, however, are subject to income tax plus a 10 percent penalty.
Qualified expenses are those directly related to the individual’s disability, such as education, housing, transportation and other services and expenses that states choose to allow under their respective programs.
To be eligible, an individual must become disabled before the age of 26 and either receive federal benefits under Supplemental Security Income (SSI) or Social Security Disability Insurance (DI) programs, or receive a disability certification under pending IRS rules.
ABLE accounts do not impact an individual’s eligibility for Medicaid. However, states would be required to recoup certain expenses through Medicaid upon the death of the individual.
The first $100,000 in ABLE account balances are not counted towards the SSI program’s $2,000 individual asset limit. This mean, in effect, an individual may have up to $102,000 in an ABLE account and remain eligible for SSI. Any distributions from an ABLE account for housing, however, would be treated as income for the purposes of the SSI program.
Look for more information in 2016 as the state of Washington gets the ABLE program running. Your CPA or CFP are great resources for information on this program and other financial planning ideas.
Mark S. Martel, CFP®, is a local independent investment advisor and principal with Martel Wealth Advisors, Inc. He can be reached at 360.694.9940. Securities and advisory services offered through KMS Financial Services, Inc.