On December 19, 2014, the Achieving a Better Life Experience Act (“ABLE Act”) became federal law. The ABLE Act allows the use of tax-free savings accounts for individuals with disabilities to cover expenses not covered by government sponsored programs. The ABLE Act permits disabled persons to have a supplemental source of income beyond that provided by programs such as Medicaid and SSI.
Under the ABLE Act, individuals with disabilities may establish a private savings account (“ABLE Account”) modeled after 529 College Savings Accounts. Although contributions to the account are not tax deductible, income earned by the account will not be subject to tax. In addition, withdrawals made for qualified disability expenses will not be taxable. Like 529 plans, each state will administer its own ABLE Account program and determine the maximum amount that may be held in such accounts. In Ohio the limit for a 529 account is $394,000. Under the Act, the first $100,000 held in an ABLE Account will be exempted from the SSI individual resource limit of $2,000. If an ABLE Account exceeds $100,000, the beneficiary will be suspended from SSI benefits until the account value drops back to $100,000. Funds held in an ABLE Account are not countable assets for Medicaid purposes. However, upon a Medicaid recipient’s death, the state’s Medicaid program is entitled to recover from the remaining balance of the account the amount of medical assistance provided from the time the account was opened.
Contributions to an ABLE Account may be made by anyone. Accordingly contributions to a disabled person’s account may be made by parents, grandparents, sibling, or friends. However the aggregate amount of all contributions made in any one year may not exceed $14,000.
To be eligible for an ABLE Account, an individual must be severely disabled before the age of 26. If an individual is over 26, it will be necessary to establish the onset of the disability prior to that age. An individual meeting this requirement who is receiving SSI or SSDI will automatically be eligible for an ABLE Account. If the disabled person is not receiving SSI or SSDI, they may still obtain eligibility under a certification process to be established by the state.
Specific regulations governing the implementation of the ABLE Act have not yet been written. Once the federal regulations are in place, each state will be responsible for adopting its own program to administer the ABLE Act.