In 2014, the Achieving a Better Life Experience Act (ABLE) was signed into law allowing states to create tax-advantage savings programs for eligible people with disabilities.
Contributions can grow tax-free and come out tax-free. Before this was passed, many people with disabilities couldn’t save more than about $2,000 without affecting some or all of the public benefits they might be receiving, like Medicaid, SSI, SNAP, as well as state-based programs.
Back in late February, when Democratic Sen. Bob Casey of Pennsylvania introduced S.331 in the Senate, it was called the ABLE Age Adjustment Act. In essence, the Act increases the eligibility of ABLE accounts to individuals who experienced a disability onset prior to age 46.
There are a few different ways to meet requirements, but currently, disabilities must have occurred before the individual’s 26th birthday. One way is to be entitled to disability benefits under SSDI or SSI. Another way is to have a written diagnosis signed by a physician to self-certify that you have a qualifying disability—again, before age 26.
Qualifying disabilities are blindness or a physical or mental impairment that severely limits functional abilities and is expected to last at least 12 continuous months. A submission of proof is not required when opening the account, but you must be able to provide it if asked.
If the disabled individual isn’t capable of handling the account as the owner, then a parent, guardian or power of attorney can open the account on that person’s behalf and manage it for them.
How it Works
An ABLE account can function like an investment account, a savings account, and a checking account. It simply depends on what the individual needs. And while each state has his or her own ABLE account—Pennsylvania’s is called PA ABLE—you don’t have to be a resident of that state to open an account under the state’s program.
Most accounts can be opened with as little as $25, and the account fees tend to be below $60 a year. Some programs and providers offer checkbooks or debit cards. It is important to make sure the individual’s needs are met before opening the account because you can only have one ABLE account.
Annual contributions are capped at $15,000 per year for non-working individuals with disabilities. If working, he or she may be able to contribute their earnings up to a certain amount. SSI and SSDI benefits can be directed to ABLE accounts, and 529s can be rolled into ABLE accounts, as long as the annual contributions don’t exceed that $15,000 limit. Also, anyone—family and friends–can contribute to an ABLE account on behalf of someone. And if you make a contribution, you can deduct that on your Pennsylvania tax return as well.
In addition to the annual contribution limit, the account value itself cannot exceed more than around $511,000. However, if the balance exceeds $100,000 and the individual is receiving SSI, their ABLE account will be counted as a resource.
You are allowed to have $2,000 outside of the ABLE Account, which means if you have more than $102,000 then SSI benefits could be suspended until the total balance drops below $102,000. It’s important to note that this $100,000 figure is ONLY for SSI and not Medicaid or anything else.
Distributions and Qualified Expenses
Distributions can be taken at any time. However, if distributions were for non-qualified expenses, then you’d be subject to tax and a 10% penalty. So, it is advantageous to only make withdrawals for qualified expenses; those expenses that relate to the disability in some way.
However, the definition is pretty loose. They don’t need to be medically necessary, but they do need to benefit the disabled person, such as housing costs like mortgage or rent, home improvement and modification costs; moving expenses; utilities and property taxes.
Other qualified distributions are education, education materials and job-related training; transportation expenses like bus passes or purchase and modification of vehicles; health or medical expenses like therapy, communication devices, or adaptive equipment; health insurance premiums; personal assistance; legal fees or financial management fees.
If made into law, the ABLE Age Adjustment Act, will push the onset of disability to age 46 and open eligibility up to millions more people. It has been referred to the Senate Finance Committee. If you would like more information or an update, please contact me.