Last week, we looked at the problems and challenges faced by people with disabilities, discussed how ABLE accounts address those problems, and explained how ABLE accounts differ from Special Needs Trusts and Pooled Trusts. This week, Attorney Franklin Drazen discusses the mechanics of ABLE accounts including eligibility criteria, contribution limits, allowable expenses, and how to access to state ABLE programs.
Who is eligible for an ABLE account?
At this time, the ABLE Act limits eligibility to individuals with significant disabilities who became disabled before age 26. If a person meets this age criteria and is also receiving benefits already under SSI and/or SSDI, he or she is automatically eligible to establish an ABLE account. If a person is not a recipient of SSI and/or SSDI, but still meets the age of onset disability requirement, he or she could still be eligible to open an ABLE account if he or she meets Social Security’s definition and criteria regarding significant functional limitations, and he or she receives a letter of certification from a licensed physician. The individual doesn’t need to be under the age of 26 to be eligible for an ABLE account. If the age of onset was before the individual’s 26th birthday, he or she can participate.
Why limit eligibility to people who become disabled before age 26? Though we don’t know for certain, it’s likely that the disability advocates who championed the legislation wanted the focus to be on people with lifelong disabilities rather than those who become disabled due to age or illness later in life. We’ve heard that there’s a movement to increase the age limit to 46 but we’re not aware of any official change to the statute. If the age limit does change, we’ll share the news with you.
Are there limits to how much money can be put in an ABLE account?
The total annual contributions by all participating individuals, including family and friends, for a single tax year is $14,000. No matter how many people are contributing, the $14,000 limit applies. The ABLE Act provides for periodic adjustments for inflation. Under current tax law, $14,000 is the maximum amount that an individual can “gift” to another person without needing to report the gift to the IRS (this is called the gift tax exclusion). The limit of contributions made over time to an ABLE account varies by state and parallels limits for education-related 529 savings accounts. Many states have set this limit at more than $300,000 per plan. However, for individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. The first $100,000 in ABLE accounts is exempt from the SSI $2,000 individual resource limit. If an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit is suspended until the account falls back below $100,000. Meanwhile, the person continues to receive Medicaid benefits.
Additionally, upon the death of the beneficiary, the state in which the beneficiary lived may file a claim to recoup all or a portion of the funds in the account equal to the amount in which the state spent on the beneficiary through their state Medicaid program. This is commonly known as the “Medicaid Pay-Back” provision and the claim could recoup Medicaid related expenses from the time the account was opened.
Which expenses are allowed by ABLE accounts?
ABLE account funds can be spent only on “qualified disability expenses.” These are expenses that the person incurs because he or she is living a life with disabilities. This could include expenses related to education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management, administrative services, and other efforts which help improve health, independence, and/or quality of life.
Can a person have more than one ABLE account?
No. The ABLE Act limits the opportunity to one ABLE account per eligible individual.
If there is no ABLE program in your state, is it necessary to wait for the state to establish a program before opening an account?
No. While the original law passed in 2014 did state that an individual had to open an account in his or her state of residency, this provision was eliminated by Congress in 2015. Today, a person can enroll in any state’s program that accepts out-of-state residents. This is true regardless of where the person lives or whether the person’s home state has decided to establish an ABLE program.
At this writing, ABLE programs in Ohio, Nebraska, and Tennessee are accepting enrollment by out-of-state residents. Some states—Florida, for example—only accept in-state residents. Use this comparison tool to find and compare ABLE programs in the U.S.
Will states offer options to invest the savings contributed to an ABLE account?
As with 529 college savings plans, states are likely to offer qualified individuals and families multiple options to establish ABLE accounts with varied investment strategies. It’s important to carefully consider what future needs and costs might be over time, and to assess risk tolerance when considering investment strategies. Account contributors or designated beneficiaries can change the way their money is invested in the account up to two times per year.
Keep in mind that this can get complicated quickly. We’re here to help. The staff at Drazen Law Group can guide you through the process of selecting the state program that best fits your needs. Just give us a call at 203.877.7511.
NEXT WEEK: Connect with helpful resources available to people who want to learn more about ABLE accounts.
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