A new investment account that models the popular 529 college savings plans will soon become available to help families that have young members with disabilities sock away money for education, housing, transportation and other major expenses.
ABLE accounts — short for Achieving a Better Life Experience — were signed into law by President Barack Obama in late 2014. The law created the framework for states to develop and administer their own investment programs, much like they do with college 529s.
The accounts have two big benefits. First, they allow individuals to set aside money in stock and bond mutual funds and other investments to be used tax-free for eligible expenses. Second, the accounts generally provide the ability to shelter the income without the risk of losing government benefits through programs such as Medicaid and Supplemental Security Income.
The goal behind the accounts is to “secure funding for disability-related expenses … that will supplement, but not supplant” benefits provided by private insurance, Medicaid and other sources, according to a review of the program by the National Down Syndrome Society.
While ABLE accounts are not available yet, Congress made a significant change in the tax law at the end of 2015 that should accelerate the rollout by the middle of this year and boost sign-ups. The tweak in December allows eligible individuals to open an ABLE from any state, rather than being tied to their home state’s plan.
Several states now expect their ABLE programs to be up and running this year, including Kansas, Missouri, Nebraska, Virginia and Iowa.
To be eligible for an ABLE, a minor or adult must be blind or have another severe physical or mental disability before age 26. If you meet that criteria and are also receiving benefits under the Supplemental Security Income or Social Security Disability Insurance programs, you are automatically eligible for an ABLE. However, some guidelines built into the law allow others to become eligible for ABLEs.
Nonprofit advocacy organizations for people with disabilities estimate that 6 million to 8 million people could benefit by opening an ABLE.
According to federal guidelines, a disabled person or friends and family members can make one-time or regular contributions to an ABLE account and the money will grow tax-free if used for any of a long list of qualified expenses that can enhance the account owners’ quality of life.
Depending on family circumstances, the account owner can be a parent or guardian appointed to make decisions on behalf of the disabled individual.
One big plus is that disabled individuals can save as much as $100,000 in one account and still qualify for Medicaid and Supplemental Security Income, a federal program for disabled people with low incomes.
Given all these benefits, opening an ABLE should be an easy decision. Not quite.
One difference from 529s is that each ABLE beneficiary is entitled to just one account. Moreover, annual contributions are capped at $14,000 per beneficiary, which may not be appealing to some higher-income families who may prefer more flexibility through a special-needs trust.
Steve Rosen: 816-234-4879