The ABLE Act is officially known as the Achieving a Better Life Experience Act of 2014. Passed by Congress on December 3, 2014, this legislation allows families to create a tax-deferred savings account for disability expenses that also do not affect eligibility for other federal assistance programs. ABLE accounts are based on existing 529 education savings plans.
Setting Up & Managing an ABLE Account
Anyone can set up and contribute to an ABLE account for your child, but your child can only have one account. Contributions are not tax deductible, but the income your child receives from distributions are not taxed.
The maximum amount allowed in an account is $500,000. If an account receives more than $14,000 in contributions in a year, there is a tax penalty. This maximum contribution amount will be adjusted yearly to reflect inflation.
Though having an ABLE account doesn’t affect Medicaid eligibility, having an account balance over $100,00 could result in suspension of any Supplemental Security Income (SSI) benefits your child receives.
Who Qualifies for ABLE
A person has to meet these qualifications:
• Became disabled before age 26 (people older than 26 are eligible, but must provide proof they were disabled before 26)
• Receives SSI or Social Security Disability Insurance disability benefits; OR has been certified as having a qualifying disability by a physician
• Have had their disability for a year or more; OR expect to be affected by their disability for a year or longer
What ABLE Accounts Cover
ABLE accounts must be used to cover expenses related to your child’s disability. If a distribution isn’t used for one of the eligible expenses, you will be responsible for a 10% tax. Eligible expenses include:
• Living expenses
• Health care (including preventative care)
• Education/employment training
• Assistive technologies
• Legal fees
Additional eligible expenses can be found in the proposed regulations issued by the IRS.
Things to Note
Keep these points in mind as you establish your child’s ABLE account:
• If your child receives SSI benefits and you withdraw money for housing expenses, you must spend the money within the month its distributed. If you don’t, your child’s SSI benefits will be affected.
• Though this is a federal act, individual states may have different methods of regulating the legislation and for investment strategies. Check with the responsible agency in your state to learn more.
To see the full Act as passed by Congress, click here.
To read the notice from the IRS regarding ABLE, click here.
To find out if ABLE has been enacted in your state and what agency is administrator for the program, click here.
A New Option
If you were concerned about your child’s disability benefits being affected by savings in their name, the ABLE legislation changes that fear. To see if an ABLE account is a good choice for your child, contact the responsible agency in your state.