ABLE Accounts - What Are the Advantages of an ABLE Account?

Families that have children with special needs face innumerable challenges regarding their education/vocational training, therapy, skilling, safety, physical and emotional health. Added to this, one of the worries that continues to haunt them throughout their life is how the person with a disability will cope in the future. Persons with disabilities face additional costs for care, mobility, transportation, nutrition, etc. The US Government has taken several important initiatives to address these issues

What Is The ABLE Act?

Keeping this in mind, the Achieving a Better Life Experience Act was passed by Congress in 2014. This Act is named after Stephen Beck Jr of Burke, Virginia, who was a committed advocate of individuals with Down Syndrome. That his own daughter was a person with Down Syndrome, and this spurred him on to work tirelessly for the cause. He was the Vice Chairman of the National Down Syndrome Society, and he worked together with this organization to aspire for financial goals that would support persons with disability and their families. It took 25 years of persistent, continuous work to get the act passed, and though he passed away just a month after it was through, his work and achievements live on. 

This Act amends Section 529 of the IRS (Internal Revenue Service) Code of 1986 so that tax-free savings accounts could be created for persons with disabilities. The funds in such accounts cannot be taken into account while calculating the $2000 cap on assets required to maintain eligibility for government-funded support. It can supplement income without supplanting benefits provided by private insurance, SSI, Medicaid, employer benefits, etc. 

As a result of this act, the strain and anxiety that families of persons with disabilities face, and the financial burden of education, housing and transportation can be enormously eased. Unfortunately, the public at large has yet to fully embrace these accounts, as there may be a lack of awareness about them and the advantages that they provide. Many parents in 2018 reported that they were not aware of the existence of such accounts and were not sure about how the systems worked in these accounts. 

How It Works?

Anyone (friends, family, Special Needs Trusts, etc) can contribute up to $15,000 in after-tax transactions annually into an ABLE account annually

A person with disability can be named as the beneficiary of only one ABLE account

To qualify as the beneficiary, the person with a disability should have become disabled/blind before age 26

The money spent from the account must be used for certain qualified purposes such as education/job training, transportation, housing, medical expenses, legal/administrative fees

Different states have slightly different federal regulations regarding ABLE accounts

Advantages of ABLE Accounts

1. Tax-Free: Distribution from ABLE accounts is completely tax-free, and you can save up to $15,000 per year without having to pay tax on it. Anyone can contribute to the account, including friends, family members, organizations, etc. ABLE accounts are also gift tax-free. 

2. Not Location Specific:Though the original Act of 2014 required accounts to be opened only in the person with disability’s state of residence, an amendment in 2015 allows you to any state’s program if that state accepts out of state residents. This means that if your state hasn’t yet established an ABLE program, you can enroll in the program offered by any other suitable state, and the account is relatively easy to set up. 

3. Ease of Use: Most people are familiar with the 529 plan for college education savings, and the ABLE program is designed on similar lines. The rules are more flexible than the 529, as parents are allowed to use the ABLE account to pay for a summer camp for their child with special needs, or make payments for housing and utility expenses for adult persons with disabilities. This means that parents have the flexibility to use the funds for both immediate needs and for long-term savings.

4. Convenience of Trustees:When family trusts are set up for persons with disabilities, the trustees may find it difficult to give money directly to the beneficiary due to prevailing laws. Hence an ABLE account reduces the burden on them when they have to help the beneficiary to meet regular living expenses.

5. Some degree of independence:An ABLE account enables the beneficiary to retain some degree of independence without having to rely on the goodness of relatives and friends to help manage the account. If the person with a disability has the necessary ability to manage their own financial affairs, the ABLE account helps them retain control of their funds and have them easily accessible too otherwise you can always contact the best financial advisor in San Francisco.

6. Not counted as Assets: The first amount of $100,000 accumulated in the ABLE account is not treated as part of an individual’s personal asset. This is a huge advantage because, in normal circumstances, individuals who have more than $2000 worth of financial assets are barred from seeking Medicaid and Supplemental Security Income benefits. This is a lacuna in the law that puts a severe burden on persons with a disability whose parents are dead/can no longer fund their requirements. The ABLE law does away with this cut-off limit.

7. Tax-free Rollovers from 529: In some cases, a person with a disability who was the beneficiary of a 529 Qualified Tuition Program (QTP) account may have completed her/his schooling program but finds that they still have some funds remaining in that account. Till recently, these funds could not be rolled over into the ABLE account, but only to another QTP account. However, new legislation changes allow such funds to be rolled over within 60 days into an ABLE account, on condition that the person already holds an ABLE account and is disabled or blind. Funds may also be rolled over into a member of the 529 account holder’s family, keeping certain criteria and upper limits in mind.

9. Non-Tax Advantage:Any balances left in the ABLE account and amounts used to pay for qualified disability expenses are disregarded while evaluating the person’s eligibility to receive federal means-tested program benefits. Hence, the ABLE account beneficiary can save this amount for the future without having to sacrifice any current benefits that they are eligible to receive.
10. Low-Cost Set Up:It is relatively inexpensive and easy to set up an ABLE account compared to other accounts such as TPSNTs (third party special needs trust).