Abstract:
Achieving
a Better Life Experience (ABLE) accounts are tax-free accounts that can be used
for expenses of disabled individuals. They can be created by a disabled person
or his or her family members or guardians. This article explains eligibility
factors and other pertinent details. A sidebar notes an ABLE account’s impact
on Supplemental Security Income.
ABLE
accounts help those with disabilities
There’s a tax-advantaged way for people to save for the needs of
family members with disabilities — without having them lose eligibility for
government benefits to which they’re entitled. It can be done through an
Achieving a Better Life Experience (ABLE) account, which is a tax-free account
that can be used for a variety of expenses.
Eligibility
ABLE accounts can be
created by eligible individuals to support themselves, by family members to
support their dependents, or by guardians for the benefit of the individuals
for whom they’re responsible.
Eligible individuals must
be blind or disabled — and must have become so before turning age 26. They also
must be entitled to benefits under the Supplemental Security Income (SSI) or
Social Security Disability Insurance (SSDI) programs. Alternatively, an
individual can become eligible if a disability certificate is filed with the
IRS for him or her.
Other key factors
Distributions from an
ABLE account are tax-free if used to pay for expenses that maintain or improve
the beneficiary’s health, independence or quality of life. These expenses
include education, housing, transportation, employment support, health and
wellness costs, assistive technology, personal support services and other
IRS-approved expenses.
Anyone can contribute to
an ABLE account. While contributions aren’t tax-deductible, account funds are
invested and grow tax-free. If distributions are used for nonqualified
expenses, the portion of the distribution that represents earnings on the
account is subject to income tax plus a 10% penalty.
An eligible individual
can have only one ABLE account. Contributions
up to the annual gift-tax exclusion amount, $15,000 in 2020, may be made to an
ABLE account each year for the benefit of an eligible person. Under a rule that
took effect in 2018, if the beneficiary works, the beneficiary can also contribute
part or all of their income to the account. (This additional contribution is
limited to the federal poverty-line amount for a one-person household for the
prior year.)
There is, however, a limit on the total
account balance. This limit, which varies from state to state, is equal to the
limit imposed by that state on qualified tuition (Section 529) plans. For contributions made before 2026, the designated
beneficiary can claim the saver’s credit for contributions made to his or her
ABLE account.
Plenty of options
There are many choices.
ABLE accounts are established under state programs, but an account may be
opened under any state’s program if the state allows out-of-state participants.
Funds in an account can be invested in a variety of options and the account’s
investment directions can typically be changed up to twice a year. Contact us
if you’d like more details about setting up or maintaining an ABLE account.
Sidebar: Impact on Supplemental Security
Income
Achieving a Better Life
Experience (ABLE) accounts
have no impact on an individual’s Medicaid eligibility. However, ABLE account
balances in excess of $100,000 are counted toward the Supplemental
Security Income (SSI) program’s $2,000 individual resource limit.
Thus, an individual’s SSI benefits are
suspended, but not terminated, if his or her ABLE account balance exceeds
$102,000 (assuming the individual has no other assets). In addition,
distributions from an ABLE account to pay housing expenses count toward the SSI
income limit.
© 2020