New Tax-exempt Savings Plan for the Disabled
Now, before you think you will need an amphetamine to get through this, let me say that this appears to describe legislation that can have direct financial benefit for a large number of people who are blind/visually impaired. Don’t let some of the high-dollar figures in the document lead you to believe this is something only for those in the highest tax brackets. If this should apply to you, or might at some time in the future, it appears that there are some very real advantages that are worth looking into.
A few days before the end of 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE), allowing Americans with disabilities to establish a tax-advantaged savings account without affecting eligibility for Social Security, Medicaid or other government-sponsored benefit programs. ABLE accounts are similar to 529 college savings plans or health savings accounts in that they allow tax-free withdrawals for qualified expenses; in this case, these could include housing, transportation or personal assistance services, in addition to education and medical care. Income earned from the accounts isn’t taxable and contributions, though not federally tax-deductible, can be made by anyone.
To qualify for an ABLE account, a person must have a significant disability with onset prior to age 26. The beneficiary can be older than 26 when establishing an account, though he or she must have documentation proving the onset of the disability occurred before age 26.
The total annual contribution limit for ABLE accounts by all sources—beneficiary, family or friends—is initially the same as the current annual gift tax exclusion amount of $14,000; this amount will be adjusted annually for inflation. The total amount that can be contributed over time to an ABLE account will be tied to each state’s limit for its sponsored 529 plan, which in many cases is $300,000 or more. However, there are other limitations on contributions for persons with disabilities who receive benefits from public programs such as Supplemental Security Income (SSI) and Medicaid. The first $100,000 accumulated in an ABLE account is exempt from the SSI individual resource limit of $2,000; if the account balance were to exceed that $100,000 limit, the beneficiary no longer would be eligible for SSI and would no longer receive that monthly benefit income, though he or she would remain eligible for Medicaid. Distributions from a ABLE account used for housing expenses also are counted as income for SSI purposes, which could make the beneficiary ineligible for SSI. Each state is responsible for launching and managing its own ABLE program in 2015 and offering multiple options for establishing an account with a variety of investment options. However, a state may elect to contract with another state to offer citizens with significant disabilities the opportunity to open an ABLE account.
The ABLE act gives individuals and their families access to the same type of flexible savings tools other Americans have to plan for and fund their unique care needs through college-, health- and retirement-specific savings accounts.
If this is indeed similar to 529 college savings plans, you may find that another state’s plan is a better deal than the ones offered by your own state.