Most of us know about 529 College Savings Plans. Recently, a provision was added to section 529 of the U.S. Tax Code that allows states to establish Achieving a Better Life Experience (ABLE) programs. These state-run programs feature accounts for people with disabilities.
Benefits of the accounts
- Income earned in the account is not taxed.
- Distributions from the account are not taxable income as long as they are used for “qualified disability expenses.”
- The disabled person is the owner and beneficiary of the account.
- Anyone can make contributions to the account:
- Contributions are not tax-deductible for federal income tax.
- Total amount of all contributions per year is the same as the annual gift tax exclusion ($14,000 for 2016 and 2017).
- Some states allow tax deductions. Nebraska allows annual deductions of up to $10,000 for contributions to ABLE accounts.
- Beneficiary is still eligible for public benefits (SSI, SNAP, Medicaid). For SSI, the maximum amount allowed in the account is $100,000.
- Balances in a 529 College Savings Plan can be rolled over into the ABLE account.
Mechanics of the accounts
- Onset of the disability must be before age 26.
- Disability is based on the disability requirements under the Social Security disability insurance program or the SSI program.
- A letter from a licensed physician documenting the disability is required before setting up the account.
- If the disabled person is already receiving benefits under SSI or SSDI, he/she is automatically eligible for an ABLE account.
- Disabled person can have only one account.
- At the death of the beneficiary, any remaining funds in the ABLE account are paid first to reimburse Medicaid for benefits received by the beneficiary after the ABLE account was created. Remaining funds go the deceased’s estate or the designated beneficiary. Investment earnings included in these funds are subject to income tax.
Qualified disability expenses
Qualified expenses are those to provide:
- Education.
- Housing.
- Transportation.
- Employment training and support.
- Assistive technology.
- Health care.
- Financial management.
- Other expenses to help to improve the health, independence, and/or qualify of life.
For eligible disabilities, go to this page on the Social Security website: https://www.ssa.gov/disability/professionals/bluebook/AdultListings.htm
For more information on ABLE accounts, visit the web site for the ABLE National Resource Center http://ablenrc.org/
For more information on the Nebraska ABLE savings program, go to https://www.enablesavings.com/home.html
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.
