by Thomas D. Begley, Jr., Esquire, CELA
On December 16, 2014, Congress enacted and sent to the President for signature an Act known as Achieving a Better Life Experience (ABLE) Act of 2014.[1] This Act is to provide a tax-favored account, similar to a 529 Plan, for individuals with disabilities to pay for qualified expenses. The effective date of this legislation is December 31, 2014. Highlights of this Act are as follows:
- State Established or Contracted. Each state is authorized to establish and operate an ABLE program. This must be done by each state before these accounts can be opened in that state. States may contract with other states to operate these programs.
- Income Non-Taxable. Income earned by the accounts would not be taxable. These accounts would be similar to 529 Plans in that the income earned by the 529 Plan is non-taxable, if it is used for certain purposes. This is the major benefit of these accounts.
- Distributions, including portions attributable to investment earnings generated by the account, to an eligible individual for qualified expenses are not taxable.
- Qualified Expenses. Qualified expenses are expenses related to the individual’s disability, such as health, education, housing, transportation, training, assistive technology, personal support, related services and expenses.
- Medicaid Payback. Upon the death of the individual, amounts remaining in the account must be paid back to Medicaid. This is known as a Medicaid payback.
- One Account. Individuals would be limited to one ABLE account, although an unlimited number of people could make contributions to that ABLE account.
- Contribution Limit. Total annual contributions by all individuals to any one ABLE account are limited to the gift tax annual exclusion amount, which is $14,000 for 2015.
- Age 26. Eligible individuals must be severely disabled before turning age 26. Individuals who become disabled after turning age 26 would not be eligible for ABLE accounts.
- Non-Countable Asset. Individuals with ABLE accounts could maintain eligibility for means-tested benefit programs, such as SSI and Medicaid. The assets in the account are non-countable for federal means-tested benefit program eligibility purposes.
- Maximum Account Size. ABLE accounts are limited to $100,000. If the account exceeded $100,000, the individual would be suspended from receipt of SSI, although SSI-linked Medicaid would remain in effect.
[1] H.R. 5771.
