ABLE Accounts Enable Significant Savings

Clients with disabilities have enough hardships to face without the added burden of watching their savings dwindle just to cover basic living expenses.

That's why the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act (Public Law 113-295) was signed into law in December 2014. The ABLE Act amended the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities. 

These accounts are used to pay for a variety of necessary expenses for disabled persons, including medical and dental care, education, community based support programs, employment training, assistive technology, housing and transportation. They are tax-advantaged because, when used for a qualified expense, the money in the account is not taxed at the federal or state level. 

Funds in an ABLE account don't count toward the $2,000 cap on assets that is required to remain eligible for critical government benefits, such as Medicaid (known as Medi-Cal in California). 

States Make Progress

The federal ABLE Act authorized states to develop their own ABLE programs.  Several states have moved to pass related laws and are in various stages of developing their programs. The National Down Syndrome Society is tracking the states' progress on its website. As of June, 11 states have begun building programs. 

The New York Times recently reported on various states' progress in launching ABLE programs. The article noted that Nebraska plans to offer accounts to a national audience on June 30.  Ohio is testing enrollments and expects to make its program available nationally this summer.  Florida expects to launch by July 1. However, the Sunshine State will restrict enrollment to state residents.

Some states are pooling together to create multi-state consortiums in hopes of being able to offer lower ABLE account fees.

You Don't Have to Wait

The Times' article included what we think is a worthy consideration for some clients. The following advice was offered by the former chairman of the National Down Syndrome Society, Chip Gerhardt, who has an 18-year-old daughter with Down syndrome.

For those wondering if they should wait until their own state offers an ABLE account, Gerhardt said, they might want to consider opening an account in Ohio or another state that makes them available early. "... Then, they could transfer the account to their home state later to take advantage of possible benefits like state tax deductions for contributions. Since the accounts have annual contribution limits, starting early would maximize the account's earning potential."

What About a Trust?

Some clients are asking how creating an ABLE account differs from forming a special needs trust. A properly structured special needs trust can be used to shelter a disabled person's assets. However, for some disabled clients, the cost of creating and maintaining a special needs trust might be prohibitive, which is why ABLE accounts were established.

Please note: Unlike funds protected within a special needs trust, the funds inside an ABLE account may be tapped to help repay Medicaid costs after a beneficiary's death.

If you have a disability or a loved one who is disabled, we encourage you to talk to our firm about how to best protect them from rising medical expenses and tax assessments.

We hope this information is useful to you and helps you and your families. If you have a specific case or a question, please don't hesitate to call our office at 919-443-3035.