In December 2014, Congress passed and President Obama signed into law the ABLE Act of 2014 (Achieving a Better Life Experience). Modeled after 529 college savings plans, the ABLE Act allows people with disabilities to open tax-free savings accounts without losing government benefits.
So long as the funds are used for qualified expenses such as education, health care, transportation, housing and other qualifying expenses, it will not affect Medicaid and SSI (Supplemental Security Income) assistance through the government.
In order for an individual to open an ABLE account, they must:
- Be eligible for SSI or SSDI benefits or be certified by a doctor as having a severe physical or intellectual disability or blindness
- The onset of the disability must be before the individual turns 26
- Use the funds for disability related purposes such as “education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses”
Additionally, individuals are restricted to a single ABLE account with annual contributions no more than $14,000 and capped at the limit each state establishes for its 529 plans. SSI payments would be suspended for those with an account balance more than $100,000.
Contributions are not tax-deductible, but earned interest and qualified distributions are tax-free. In the event that the individual passes, funds remaining in the ABLE account must reimburse Medicaid first for services offered since the ABLE account was established.
Having just been signed into law, there are still many details that need to be determined by the IRS. And it is up to each state as to how it will be enacted, much like how states introduced 529 plans. Many more details on how Ohio will mandate the ABLE Act will unfold. As they do, we will update our blog to communicate those details with you. Interested in other great resources available for disabilities? Check out our resources page.