The Steven Beck Achieving a Better Life Experience Act was signed by President Obama and became law on December 19, 2014. ABLE accounts were added to Section 529A of the Internal Revenue Code. The ABLE Act allows states to create a new option for eligible people with disabilities to save money in a tax-exempt account that may be used for qualified disability expenses while still protecting their eligibility to receive most means-tested federal benefits such as Supplemental Security Income (SSI) and Medicaid.
To be eligible for an ABLE Account an individual must have developed a disability prior to age 26. Additionally, the individual must be found eligible for SSI or Social Security Disability Income (SSD/SSDI) or obtain a signed “disability certification” from a physician that states the person’s diagnosis and that the person meets the functional disability criteria according to the ABLE Act. The certification should be maintained by the beneficiary of the account and should only be provided to the IRS or ABLE program upon request. The eligible person is the ABLE account designated beneficiary and owner, although a legal guardian or an agent under a power of attorney may have signatory authority. A disabled person may only have one ABLE Account.
Money in the ABLE account may be used for qualified disability expenses related to the individual’s disability or blindness to maintain health, independence and quality of life. The expenses do not need to be medically necessary and may include: education, transportation, employment training and support, assistive technology, health prevention, financial management, legal fees, or funeral and burial expenses. New Social Security Administration rules will treat housing expenses as resources only if distributed in one month and held until the following month or later. ABLE assets do not impact state benefits, but for SSI, only the first $100,000 of ABLE assets will be disregarded. If an ABLE account exceeds $100,000, SSI payments will be suspended but Medicaid eligibility will not be terminated.
Contributions to the accounts are made with post tax dollars. Multiple individuals may contribute to the account but total annual contributions may not exceed the federal annual gift tax limit, which is currently $14,000. Distributions from the ABLE accounts for qualified disability expenses are exempt from taxation. Generally, distributions not used for qualified disability expenses are taxable and subject to an additional tax of 10%. In Pennsylvania, the property of the program, the earnings and the contributions made to ABLE accounts are exempt from taxation by the Commonwealth and its political subdivisions.
Each state has to decide if and how to offer ABLE accounts. The Consolidated Appropriation Act of 2016 amended the ABLE Act residency requirement for qualified ABLE programs. Now, you can open an ABLE account in any state. Currently, Nebraska, Ohio, Tennessee, and Florida are offering ABLE programs. Although, you can open an ABLE account in any state, if a disabled person lives in and is receiving Medicaid serves in Pennsylvania, opening an account in Pennsylvania may be beneficial. Governor Wolf signed Pennsylvania’s ABLE legislation on April 18, 2016 (Act 17 of 2016). The accounts will go through the Pennsylvania Treasury Department. You will be able to open the account online or by mail. Although the disabled individual will be the owner of the account, in PA, the following individuals/entities may be authorized signatories on the account: a parent/guardian, any person designated in writing by the parent or guardian, a trustee of a trust for which the eligible individual is a beneficiary, a representative payee or anyone else allowed by federal law. Additionally, if a parent/guardian/Agent under Power of Attorney opens an ABLE account on behalf of a minor, they are the fiduciary until they decide to relinquish control of the account. This does not apply if the account is opened for an individual with a disability who is over 18. Prior to death, the account may be rolled over to the ABLE account of an eligible sibling. Importantly, Pennsylvania’s ABLE Act ensures that money remaining in the ABLE account after the account owner passes away will be distributed according to his or her estate. Specifically, Section 503(d) of Act 17 of 2016, states, “an agency or instrumentality of the Commonwealth may not seek payment under section 529A(f) of the Internal Revenue Code from the account proceeds for benefits provided to a designated beneficiary.” Consequently, there is no payback provision for those services provided by Pennsylvania.
It is anticipated that the PA Department of Treasury will roll out the ABLE Account program at the end of 2016 or at the latest the beginning of 2017. Pennsylvania is joining with eight other states to form an ABLE consortium that will allow them to minimize program costs and attract investment opportunities. For more information go to www.PAABLE.gov.
If you have a question about the ABLE Act, please contact Jillian F. Zacks of Strassburger McKenna Gutnick & Gefsky at email@example.com or (412) 281-5423.