The Achieving a Better Life Experience (ABLE) Act has passed both the House and the Senate with bi-partisan support and is on its way to the President to become law.

The Act will allow families to save for an individual with a disability without risking the loss of medical assistance benefits.   The Act encourages and assists individuals and families to save to support individuals with disabilities to maintain health, independence and quality of life.    The new tax advantaged accounts take effect January 1, 2015.  Here is what you need to know about ABLE accounts:

  • The ABLE Act authorizes states to create ABLE programs – similar to 529 College Savings Plans.  It is expected that many states will offer income tax deductions for contributions to ABLE accounts similar to 529 plans.
  • An ABLE account can be created by a family member or the disabled individual.
  • A disabled individual is limited to one ABLE account.
  • Contributions to the ABLE account must be cash or a rollover from an ABLE account of another eligible individual who is a family member of the beneficiary.
  • Contributions to an ABLE account are treated as a completed gift.
  • To be eligible, the beneficiary must have become blind or disabled prior to turning 26.
  • The social security definition of disability is used to determine disability status.
  •  Tax free distributions can be made for education, housing, transportation, employment training and support, assistive technology and personal support services, health prevention and wellness costs, financial management and administration fees, legal fees, expenses for oversight and monitoring and funeral and burial expenses of the beneficiary.
  • Distributions for non-qualified expenses are subject to income tax on earnings, plus a ten percent (10%) penalty of the earnings.
  • Funds in the ABLE account will be disregarded for purposes of determining eligibility of certain means-tested federal programs up to $100,000.
  • Medical assistance benefits will not be affected, regardless of whether the account balance exceeds $100,000.
  • If the account balance exceeds $100,000 SSI benefits will be suspended but not terminated.
  • Payback provision:  upon the death of the beneficiary, an amount equal to the total medical assistance paid on behalf of the beneficiary for which reimbursement is required under a state plan will be distributed to such State from the remaining account balance.
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