The US Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014. The law will enable people with disabilities to access savings accounts to pay disability-related expenses. The accounts will not affect Medicaid and Supplement Security Income eligibility.
Recently, the Internal Revenue Service released proposed regulations authorizing states to provide tax-favored ABLE accounts to people with disabilities. These new accounts will operate similar to 529 college accounts. They will not replace special needs trusts in estate planning, but could be another tool for families with a disabled child.
The general framework
Each state will set up its own program (referred to as 529A accounts). The disabled individual is the account owner and also its designated beneficiary.
Yearly contributions up to $14,000 (the current gift tax exclusion) can be made to the account. The 529A account can have a balance up to $100,000 without affecting SSI eligibility. A higher balance could result in suspended SSI benefits, but would not affect Medicaid eligibility.
What expenses can the account be used to pay?
Distributions to pay for qualified disability expenses would then be tax-free. These expenses are somewhat broad and include things that improve independence, health and also quality of life. Several examples include:
- Assistive technology
- Employment training, support and education
Colorado will need to pass new legislation before 529A accounts becomes available in the state. The earliest that this could happen is 2016.
To learn more about these accounts and how they may fit into a comprehensive estate plan, speak with an experienced estate planning attorney.