In December of 2014, Congress approved the Achieving a Better Life Experience (ABLE) Act that allows for tax-advantaged savings for persons with disabilities. Known as ABLE accounts, these new accounts allow earnings to grow tax-free and distributions to be tax-free for qualified disability expenses. Under the provisions of the new law the accounts cannot reduce certain Medicaid or supplemental security income (SSI). The accounts are designed to encourage savings to maintain health, independence and quality of life and secure funding that will supplement other benefits individuals with disabilities receive through Medicaid, SSI, or employment without disqualifying them from those benefits.
Who Qualifies?
Individuals eligible to establish an account include persons with physical or mental disabilities or blindness that have lasted more than 12 months but occurred prior to attaining the age of 26.
Who can contribute?
While the account beneficiary and owner must be the individual with disabilities anyone can contribute to the ABLE account subject to an aggregate limit of contributions from all contributors to the annual gift tax exclusion ($14,000 for 2015). An excise tax is imposed on excess contributions but only if the trustee doesn’t make the required corrective distribution within the tax year.
What uses are qualified uses for ABLE Distributions?
The beneficiary of the account can withdraw contributions and earnings at any time for qualified disability expenses. These 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
- Funeral and burial expense
- Other expenses consistent with the purpose of this provision
What limitations are placed on the ABLE accounts?
A qualified individual can hold one ABLE account. ABLE accounts can accept cash contributions only. Any non-cash contributions can be returned in a corrective distribution. The balance of the accounts is disregarded for most federal means-tested programs. However, SSI programs will consider amounts in excess of $100,000 as excess resources for purposes of SSI benefits.
How can I learn more about ABLE accounts?
The IRS has directed that within six months additional regulations and guidance is to be issued regarding the information needed to establish an ABLE account as well as additional clarification on the qualifications and qualified distributions from the accounts. In the interim please contact our office at (719) 630-1186 for more information on ABLE accounts or to see if an ABLE account is right for you.
