Some disabled individuals may now obtain tax-advantaged accounts, similar to 529 college savings accounts, to pay for expenses related to disability.
These accounts result from the Achieving a Better Life Experience (ABLE) Act passed by Congress in 2014.
Allowable amounts held in these accounts will not interfere with Medicaid or SSI (Supplemental Security Income) eligibility. Account earnings, and distributions related to disability, are not taxable.
As of this writing, four states (Nebraska, Ohio, Tennessee, and Florida) offer ABLE accounts. Pennsylvania has passed legislation authorizing the state to offer those accounts, though they are not yet available here.
Who may purchase an ABLE account?
To be eligible to open an ABLE account, a person must be blind or disabled according to the standards used by the Social Security Administration. This condition must have occurred before the person turned age 26.
If the account beneficiary is a minor, or is incapable of managing the account, then a parent, legal guardian, or agent under a power of attorney can have signature authority.
How much can be contributed to an account?
Total contributions each year to an ABLE account cannot exceed the federal gift tax exclusion amount. That amount is $14,000 per year in 2016, but gets increased occasionally for inflation.
Total lifetime contributions cannot exceed the state maximum for contributions to a 529 college savings plan. In Pennsylvania, that maximum currently stands at $511,758.
What types of expenses can the account be used for?
The ABLE Act defines the term “qualified disability expenses” to include the following: “education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses,” and other expenses approved by regulations.
As of this writing, the IRS has not published regulations, but has issued an IRS Interim Guidance (Notice 2015-81). In that notice, the IRS writes that the term “qualified disability expenses” is to be “broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for items for which there is a medical necessity or which provides no benefit to others in addition to the benefit of the eligible individual.”
Where can I get more information?
A good resource for up-to-date information on ABLE accounts can be found online at ABLEnrc.org. Subscribe to this blog for updates on ABLE accounts and other elder and disability law matters.
