ABLE accounts: A new savings account for people with disabilities

On December 19, 2014, President Obama signed the law “Achieving a Better Life Experience Act of 2014“, also known as”The ABLE Act of 2014This new law allows states to establish an ABLE program under which eligible disabled people can create an ABLE account. These accounts are modeled on § 529 (college savings) accounts.

Who can have an ABLE account? Eligibility will be limited to people who became severely disabled before the age of 26. An elderly disabled person may have such an account, provided that the person’s disability occurred before age 26. A person can prove his disability by receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) or by providing a disability certification , under rules that the federal government will issue.

Are there dollar limits for such accounts? The total annual contribution by all individuals to a Qualified Individual’s ABLE Account is limited to the Exclusive Gift Tax Exclusion (currently $ 14,000.00). Total of all contributions to a single account is the maximum amount allowed by the state for § 529 accounts (currently $ 310,000.00 in Oregon). A qualified person can only have such an account.

Are there any tax advantages to having such an account? Revenue earned from accounts is not taxed, provided that account withdrawals are used for eligible expenses. Contributions to the account are not deductible.

How can the account be used? ABLE account funds can be deducted to pay expenses related to the person’s disability, including housing, transportation, education, employment, vocational training, assistive technology and personal support, health, prevention and wellness, financial management, attorney fees, funeral and burial services.

Will an ABLE account affect eligibility for Medicaid? No, having an ABLE account would not jeopardize the eligibility of individuals for means-tested benefit programs like SSI or Medicaid. This is one of the significant benefits of ABLE accounts. Under current law, individuals with more than $ 2,000.00 resources are not eligible for SSI. However, the first $ 100,000.00 in an ABLE account is not counted at the $ 2,000.00 resource limit.

How quickly can such an account be created? Ah, there’s the rub. Two things must happen before an ABLE program can be established here in Oregon. U.S.A. The Treasury Department needs to generate the rules (think with fine print) by which this legislation is implemented and it can take as long as six months. Second, the state of Oregon has to “sign up” for the ABLE program and allow such accounts in the state.

Be aware of federal and state actions regarding the implementation of this new law.

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