The Achieving a Better Life Experience Act (ABLE) accounts were created to provide a tax-advantaged savings tool for individuals with disabilities and their families.
Millions of Americans with disabilities and their families depend on government benefits to help provide income, health care, food and housing assistance. Eligibility for assistance through Supplemental Security Income, SNAP and Medicaid is based upon a resource test, so disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets. This can present a difficult problem.
nj.com’s article, “ABLE accounts–A tax advantaged tool for special needs planning,” advises that when used correctly, this overlooked savings account may allow families to build a small nest egg, without affecting eligibility for government program benefits.
An ABLE account is designed to be a savings or investment account to supplement government benefits. It can be a powerful strategy for individuals, who previously were unable to build supplemental funds outside of a trust for their needs. These accounts are funded with after-tax contributions that can grow tax-free when used for a qualified disability expense. The account owner is also the beneficiary and contributions can be made from any person including the beneficiary, friends, and family.
These accounts are available to individuals with significant disabilities whose age of onset of disability was before they turned 26. A person could be over the age of 26 but must have had an age of onset before their 26th birthday.
Contributions are restricted to $15,000 per year. The total contribution amount per beneficiary is limited by state law. Individuals can have up to $100,000 in an ABLE account, without impacting SSI eligibility. The first $100,000 also does not count toward the $2,000 resource restriction.
A frequently asked question is whether to use an ABLE account or a Special Needs Trust (SNT) for planning purposes. ABLE accounts are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a SNT, but they may be a great tool in addition to an SNT. Remember that ABLE accounts can only receive $15,000 in deposits each year, but, in most cases, Special Needs Trusts can receive much larger contributions. This is an important difference for parents who want to leave more substantial assets to their child when they die but don’t want to jeopardize the child’s eligibility for critical services.
When the beneficiary of the ABLE account passes away, any funds left in the account are typically reimbursed to the state to defray the costs of providing services during the beneficiary’s life. However, that may not happen with a properly drafted Special Needs Trust.
As of 2019, ABLE account owners who work, but don’t have an employer-sponsored retirement plan, can now save up to $12,140 in additional savings from their earnings.
Ask your estate planning attorney about possibly coordinating an ABLE account with a Special Needs Trust.
Reference: nj.com (April 20, 2019) “ABLE accounts – A tax advantaged tool for special needs planning”