What exactly is an ABLE account? An ABLE account is a relatively new special needs planning tool that is designed to give individuals with disabilities more independence and control over their lives. ABLE stands for Achieving a Better Life Experience, which is the name of the law passed by Congress in 2014 (and now by every state) that allows an ABLE account to be established for certain qualifying individuals with a disability.
An ABLE account is, simply put, an account where funds can be contributed on behalf of an individual who is eligible now (or may be in the future) to receive state or government benefits (i.e. SSI or Medicaid) without jeopardizing those benefits. An ABLE account is a tool that is best used in conjunction with the supplemental or special needs trust that you may have already implemented as part of your overall estate plan for your loved one with a disability.
Here’s a summary of the most important facts you need to know about ABLE accounts:
- Each individual can only have one ABLE account
- In order to qualify for an ABLE account, an individual must have a qualifying disability that onset prior to age twenty-six (26)
- Assets titled in the name of an individual who is diagnosed with a disability can be transferred directly to an ABLE account without affecting eligibility for state or government benefits
- No more than the federal annual exclusion amount ($15,000 for 2021) in the aggregate can be contributed to an ABLE account each year from all sources
- If the ABLE account beneficiary is working, additional contributions from their gross income can be made to their ABLE account each year up to the federal poverty level ($12,760 for 2021)
- An ABLE account can hold up to $100,000 and will not be counted as a resource for the purpose of qualifying for SSI benefits
- An ABLE account can hold up to $350,000 and will not be counted as a resource for the purpose of qualifying for Medicaid benefits
- The ABLE account funds must be used to pay for qualified disability expenses (i.e. health, education, transportation, employment training, wellness and assistive technology) for the account owner (called the account beneficiary)
- The ABLE account funds can also be used to pay towards housing without disqualifying the account beneficiary from state or government benefits, unlike a traditional supplemental or special needs trust
- The account beneficiary can make payments for qualified disability expenses without the need to always ask a third party (i.e. trustee of a supplemental needs trust) for the funds
- Income earned on the ABLE account funds is exempt from federal income tax as long as the income remains in the ABLE account or is used for qualified disability expenses
- If you already established a traditional 529 account for your child who is later diagnosed with a qualifying disability, you can convert up to $15,000 of that traditional 529 account per year to an ABLE account for your child
- If you contribute to an ABLE account you get the same state tax deduction as you would if you contributed to a traditional 529 account ($2,500 per year for each individual)
- In most states, the balance held in an ABLE account upon the death of the account beneficiary is not subject to Medicaid claw back
- The ABLE Age Adjustment Act that was reintroduced to Congress in February 2021 will make individuals whose disability began before age 46 (increased from age 26) eligible to set up an ABLE account if passed
Contact us to schedule a free consultation to learn more about ABLE accounts and to discuss if you should include an ABLE account as part of your overall estate plan for your loved one with a disability.