New disability law allows savings accounts

The Achieving a Better Life Experience (ABLE) Act passed in December 2014.

Law allows people with disabilities to have savings

funded by tax-deferred money.

1. The ABLE Act and why it is so important.

The ABLE Act allows people disabled before their 26th birthday and their families to set up a special savings account for disability-related expenses. Account funds will not be considered for the supplemental security income (SSI) program, Medicaid, and other federal asset-tested benefits. An eligible individual is limited to one ABLE Account, and total annual contributions to the account may not exceed the annual gift tax exclusion (currently $14,000). In the case that an individual’s ABLE account balance exceeds $100,000, such individual’s SSI benefits shall not be terminated, but instead shall be suspended until such time as the individual’s resources fall below $100,000. However, Medicaid eligibility is not affected by the amount held in the ABLE account. Even if the account holds over $100,000, the beneficiary may still receive Medicaid although they no longer qualify for SSI.

For the first time, people can have some money in the bank and still get disability benefits or Medicaid, without having to put the money into an irrevocable trust where they will never own it again.

Like college savings plans, distributions from ABLE Accounts are not subject to taxation as long as the money is used for an individual’s qualified disability expenses. These are expenses for the benefit of a disabled individual for education; housing; transportation; employment training and support; assistive technology and personal support services; health and wellness; financial management; legal fees; expenses for oversight and monitoring; funeral and burial expenses.

2. How does this differ from current law?

Under current law, in order to remain eligible for public benefits like SSI and Medicaid, recipients or applicants must have no more than $2,000 in cash savings or retirement savings and few items of value. Individuals and families can lose federal benefits if savings exceed asset limits.

3. How soon would people be able to set-up ABLE accounts?

Those who study these things predict the regulations necessary to implement the ABLE Act will be finished in late 2015. Before accounts can be set up, regulations have to be written by the Department of Treasury and ABLE programs established in states.