United States: ABLE Act Allows Millions Of Individuals With Disabilities To Save

Last Updated: February 18 2015
Article by Celia Roady, Alexander L. Reid and Vivian S. McCardell

ABLE Act establishes tax-free accounts that enable individuals with disabilities to invest with financial institutions without losing their government benefits.

U.S. President Barack Obama signed the Achieving a Better Life Experience Act of 2014 (ABLE Act) on December 19, 2014. The ABLE Act is a major victory for disability advocates who have long sought a way for individuals with disabilities to save money without losing their Medicaid eligibility and Supplemental Security Income (SSI). The legislation creates a new form of tax-exempt savings account (ABLE Account) akin to section 529 college savings accounts and is codified at Internal Revenue Code section 529A. There are 58 million individuals with disabilities in the United States, many of whom may seek to establish ABLE Accounts.1.

Qualified ABLE Programs and ABLE Accounts

Like section 529 college savings programs, a qualified ABLE program is established and maintained by a state and managed by a financial institution. The assets held in an ABLE Account are not subject to current income tax and thus accumulate on a tax-free basis. Although contributions to an ABLE Account are not tax deductible for federal income tax purposes, they may be deductible for state income tax purposes. ABLE Account contributions generally are treated as completed gifts eligible for the gift tax annual exclusion. An eligible individual is limited to one ABLE Account, and total annual contributions may not exceed the annual gift tax exclusion (currently $14,000). Each state may set the maximum amount of contributions to ABLE Accounts under its program, and excess contributions are subject to tax. Individuals are not limited to the ABLE program of their own state and may choose another state's ABLE program.

Like college savings plans, distributions from ABLE Accounts are not subject to taxation as long as the accounts are limited to an individual's qualified disability expenses. In addition to being includible in gross income, distributions not used for qualified disability expenses are subject to an additional 10% tax. Qualified disability expenses may include expenses for the individual's

  • education, housing, transportation, and employment training and support;
  • assistive technology and personal support services;
  • health, prevention, and wellness;
  • financial management and administrative services, legal fees, and expenses for oversight and monitoring;
  • funeral and burial expenses; and
  • other expenses approved by the Secretary of the Treasury under regulations.

An individual with a disability is eligible for an ABLE Account if that person is diagnosed with blindness or a disability prior to his or her 26th birthday. There are two ways of establishing eligibility.

  • The individual may certify to the Internal Revenue Service that he or she is either blind or has a medically determinable physical or mental impairment that results in marked and severe functional limitations that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. The certification must include a copy of the individual's diagnosis signed by a qualified physician.
  • Individuals who are entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act are eligible ABLE Account beneficiaries without additional certification.

An ABLE Account may be rolled over into another ABLE Account of the same designated beneficiary or an ABLE Account of a family member of the beneficiary. Distributions may be rolled over tax-free within 60 days after distribution, but only one rollover is permitted in a 12-month period.

Treatment of ABLE Accounts Under Federal Programs

Millions of individuals with disabilities and their families depend on public benefits for income, healthcare, food, and housing assistance. Individuals who report more than $2,000 in cash savings, retirement funds, and other items of significant value are subject to means testing that limits their eligibility for programs such as SSI, Supplemental Nutritional Assistance Program, and Medicaid. As a result, public policy has required individuals to remain poor and without savings to be eligible for these public benefits.

The ABLE Act addresses this problem by treating assets held in an ABLE Account, and any distribution for qualified disability expenses, as disregarded for purposes of determining an individual's eligibility to receive, or the amount of, any assistance or benefit authorized by any federal means-tested program, including Medicaid. There are limitations, however. In the case of the SSI program, distributions for housing expenses are not disregarded, nor are amounts in an ABLE account in excess of $100,000. In the case that an individual's ABLE account balance exceeds $100,000, such individual's SSI benefits shall not be terminated, but instead shall be suspended until such time as the individual's resources fall below $100,000.

How Individuals with Disabilities and Their Families Are Likely to Use ABLE Accounts

There are many scenarios in which an ABLE Account will be useful to individuals with disabilities and their families. Here are a few examples:

  • Family members may use an ABLE Account to accumulate savings for the anticipated future expenses of a child with a disability and otherwise to provide for the child.
  • Family members of an adult with a disability may use an ABLE Account to save funds to pay for current or future expenses.
  • Working adults with disabilities may use an ABLE Account to save earnings for future expenses without forfeiture while continuing to qualify for Medicaid and SSI.

Additional Guidance

States are beginning to enact legislation to establish state-level ABLE Account programs, and financial institutions are working with states and the U.S. Department of the Treasury to implement the section 592A legislation.

Full text of the legislation is available here.

Footnote

1. See National Disability Institute, Congress Passes ABLE Act: Major Victory for Persons with Disabilities and Their Families (Dec. 17, 2014).

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.