|Pathways Advisory Group. Inc.|
Michelle Carter, CFP®
On December 19th, President Obama signed the Achieving Better Life Expectancy Act (ABLE Act) into law. This provides an opportunity to set aside savings (an ABLE account) for significantly disabled individuals, without impacting their ability to qualify for disability benefits (provided the onset of the disability was prior to age 26). Previously, this could be accomplished using a Special Needs or Pooled Trust; however, this new “ABLE account” will offer more choice and control, with less complications and cost.
Currently, any significant assets (cash savings, retirement accounts, etc) held by a disabled person with a value of $2000 or more must be reported, and could impact his or her ability to receive government disability-related benefits. An ABLE account will not be subject to this limitation. It will also have a tax-advantages, as all income from this account is tax-free, when used for qualified disability-related expenses (contributions to the account are not tax-deductible). These qualified expenses could include health costs, education, housing, transportation, employment training, financial services and so on.
There are some limitations… Each individual can only have one ABLE account (although multiple people can contribute to one account). The annual contribution limit for 2015 is $14,000, and will likely be indexed for inflation. The total amount allowed in the account will vary by state, but will likely match 529 Plan guidelines (currently $371,000 in California). Once the account surpasses $100,000 in value, SSI benefits may be suspended, but Medi-cal will not be impacted regardless of the account value.
Each state will offer its own ABLE account plan (or partner up with another state’s plan). The Secretary of the Department of the Treasury is currently working to develop regulations. It is expected ABLE account plan options will begin rolling out before year-end. As with 529 Plans, it is also expected states are likely to offer opportunities to invest in the market within the ABLE accounts.
It is estimated more than 5.8 million individuals and their families will benefit from the ABLE Act.
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