October 14, 2016
The Stephen Beck, Jr. ABLE Act (Achieving a Better Life Experience) was conceived and championed by Stephen Beck, Jr., a Virginia father of a daughter with Down’s Syndrome, who thought up a new way to allow disabled people to save money without impacting their qualification for Medicaid and SSI benefits. The Act was signed into law by President Obama on December 19, 2014. This Act’s purpose is to provide a new account type specifically for special needs individuals which enables them to save money without losing their needs-based public benefits like Medicaid and SSI.
Under the ABLE Act, the individual states set up the savings program for people with disabilities. This savings program is similar to how 529 college savings accounts work. With certain restrictions, an account can be established for use by a beneficiary with special needs. On April 1, 2016, South Carolina Governor Nikki Haley signed SC’s ABLE Act-enacting legislation into law.
Setting up an ABLE account:
An ABLE account can be set up by a parent, legal guardian, or agent acting under a Power of Attorney.
Qualification for an ABLE account:
To qualify to set up an ABLE account, the beneficiary must either: 1) be eligible for SSI based on blindness or disability which began before age 26; or, 2) be eligible for Disability Insurance Benefits, Childhood Disability Benefits, or Disabled Widow’s/Widower’s Benefits based on blindness or disability that began before age 26; or 3) a parent or guardian must certify that the disabled person has a medically determinable impairment or blindness which began before age 26.
Benefits and Limits of the ABLE Act:
There are limits to the amount of savings that can be built up in an ABLE account. The annual contribution amount per account cannot exceed the annual gift-tax exclusion amount, which is currently set at $14,000. Also, ABLE accounts can only accumulate aggregate contributions up to South Carolina’s limit on 529 plans, which is currently $370,000.00.
The real benefit of the account for the special needs person is that the amount of money in the ABLE account is not countable for Medicaid purposes at all, and the first $100,000 in the ABLE account is not countable for SSI purposes.
For example, if a person has $100,000.00 in their ABLE account and no other countable assets, they can continue to receive SSI and Medicaid. If a person has $101,000.00 in their ABLE account, and over $1,500.00 in other countable assets, they will become ineligible for SSI, because the $1,000.00 counted from the ABLE account plus $1,500.00 in other countable assets puts the person over the $2,000.00 resource limit for SSI. But the Medicaid benefits can continue because countable assets for Medicaid do not include any amount in the ABLE account. If a person has greater than 102,000.00 in the ABLE account and no other countable assets, again, SSI would stop but Medicaid would continue. These rules are complex, if you have a question, you should review them with an elder law attorney.
Social security has also stated that distributions from an ABLE account will not be included in the beneficiary’s income for SSI qualification purposes, regardless of whether the distribution is qualified or un-qualified, and whether the distribution is for housing or non-housing expense.
Payment After Death of Account Beneficiary
The ABLE Account is a “Medicaid Payback” account. This means that upon the death of the account beneficiary, Medicaid payments given to a beneficiary after the establishment of the ABLE account have to be reimbursed with any money remaining in the ABLE account. If there is no required reimbursement, or if after reimbursement there are funds remaining, the account may be paid to the account beneficiary’s named beneficiary or to the estate.
Withdrawals from ABLE accounts are tax free as long as the withdrawal is for qualified disability expenses. Qualified disability expenses include expenses for: education, housing, transportation, employment training, assisstive technology, health and wellness, preventive medical care, financial management, legal fees, funeral expenses, and basic living expenses.
Taxation of ABLE accounts is similar to that of 529 accounts. Qualified distributions from the account are not taxable to either the account contributor or the beneficiary.
Income earned by the ABLE account is not taxable to the account contributor or to the beneficiary. However, contributions are not tax-deductible and must be made from post-tax income.
Assets in an ABLE account can be rolled over to another ABLE account for the benefit of another qualified person who is a brother, sister, stepbrother or stepsister of the initial beneficiary.
There are bills pending in Congress to raise the age of onset of disability from 26 to 46, as well as a bill to allow employed account beneficiaries to save additional amounts above the gift tax annual exclusion amount. Stay tuned …