Achieving a Better Life Experience: The Pros & Cons of the Able Act

Rarely do we experience bold steps by our government to address the needs of persons with disabilities. Toward that goal, Congress passed the Achieving a Better Life Experience Act of 2014 to provide IRA style savings accounts for persons with disabilities. President Obama’s signature completes the process. What is great about this Act is the recognition that persons with disabilities should have ways to save funds to supplement the meager amounts they receive from public benefits. Moreover, in providing a method to save, the Act also gives the account custodian or beneficiary control over their funds. Here’s what ABLE does and does not do.

An ABLE Account will be a state sponsored account like the 529 plans for education. Those accounts are managed through an agreement with a brokerage firm and are subject to some fees. It will take most states at least a year to establish an agreement with a brokerage firm and offer the ABLE account. The ABLE Accounts will be owned by the individual with the disability. The benefit of an ABLE Account is that it is not a means tested program and allows for individuals with disabilities to surpass the asset limits of SSI.

Only persons who have a significant disability, which began prior to their 26th birthday will qualify for the ABLE Account. Income earned within the account is not subject to income tax.

Notice also that the ABLE account must have been opened before the disabled persons’ 26th birthday or they must demonstrate that their disability began before their 26th birthday.

For those who already receive public benefits such as SSI (income payments), SNAP (food stamps), and Medicaid, the most that can remain in the ABLE Account is $100,000. More than that and the disabled person’s ABLE Account will result in a suspension of SSI. There is only one ABLE Account per person. The law provides that the ABLE account can only be funded at the rate of $14,000 per year, per beneficiary with that contribution amount subject to later adjustment.

Expenses from the ABLE account can be made only for “qualified disability expenses”. While advocates understand this to mean any expense related to the beneficiary as a result of living a life with disabilities such as education, housing, transportation and training, the exact definition will be developed in regulations by the Treasury Department.

Medicaid recipients with ABLE accounts are creating an asset that is subject to a government lien satisfied upon the death of the Medicaid recipient, now ABLE account beneficiary. For example, if at the time of death of the beneficiary, there remains $50,000 in the account and the beneficiary had “consumed” Medicaid services in excess of $50,000 then the entire amount will be paid to the state to satisfy the Medicaid lien.

The National Disability Institute estimates that up to 5.8 million Americans might qualify to have an ABLE account. The actual numbers making use of the account are likely to be smaller. There are limitations to keep in mind such as: being disabled before 26, no more than $100,000 if an SSI recipient, limitations on how the funds can be spent, working through a state sponsored plan with a brokerage firm, and income tax benefits that are likely of no benefit at all.

Keeping in mind the limitations, the ABLE Act will still be a great tax advantaged account for individuals with disabilities to utilize. Looks like the Government is moving in the right direction with the ABLE Act and has noticed the needs of persons with disabilities.