Parents of children, who are disabled prior to age 26, will have another way to supplement their child’s life under the 2014 Act that was passed. While there are limitations, it is an important step for parents. Please note, the Act was passed but implementation will be while.
JUNE 2, 2015 ABLE ACCOUNTS:
Congressional act known as the Achieving a Better Life Experience (ABLE).
This law was signed into law in 2014. It is modeled on 529 plans and it is there to provide tax favored accounts for individuals with disabilities to pay for qualified expense.
While the law was passed, we must wait for two things:
First, the federal government must adopt regulations governing these accounts, and Second, the states must either create their own ABLE account or contract with other states to do so.
Each state is authorized by this law to establish and operate an ABLE account. If they desire, any state can contract with another state to operate the programs.
Contributions must be in cash and may be made by any person. These are not tax deductable. Total amount for an annual contribution is limited to the gift tax annual exclusion, (which is $14,000 for 2015)
Just some provisions of the ABLE Act include:
• An eligible individuals must be severely disabled before turning age 26. An individual does not need to receive SSI or SSDI
• But the disability of the individual must be based on marked and severe functional limitations or receipt of benefits under SSI /SSDI
• While 529 plans may have limits higher than $100,000, ABLE accounts are cannot exceed $100,000. Any excess would cause a suspension of SSI until it goes back down.
• Income to the account would not be taxable as long as it is
“properly distributed”, just like the 529 plans.
• Distributions, including portions attributable to investment earnings generated by the account to an eligible individual for qualified expenses are not taxable.
• Qualified expenses are expenses related to the individual’s disability, such as health, education, housing, transportation, training, assistive technology, personal support, related services and expenses. Regulations will address this further.
• There is a Medicaid payback provision. Upon the death of the individual amounts remaining in the account must be paid back to Medicaid if it is owed money.
• Individual’s are limited to one account. Any number of people can contribute to it.
There are many more provisions. This is just a portion of the outline. These accounts will be helpful as long as one fits within the parameters of the Regulations. We will try and update as new information becomes available.