What You Need to Know About the ABLE Act

The folks at Autism Speaks provide an overview of the Able Act, signed into law for 2015. The Achieving a Better Life Experience Act allows people with special needs to have a tax-free savings account to help finance disability-related needs.

On Dec. 19 President Obama signed the ABLE Act, a law which allows people with disabilities to save up to $100,000 without risking eligibility for Social Security. No matter how much money is accrued in an ABLE account, individuals can also maintain their Medicaid coverage.

On Dec. 19, President Obama signed into law the ABLE Act, otherwise known as the Achieving a Better Life Experience Act. This new act will make a profound different for the autism community.

ABLE amends the federal tax code to allow tax-free savings accounts to help finance disability-related needs. These accounts are similar to Section 529 college savings accounts. The $2,000 cap on savings for individuals with disabilities has been eliminated for ABLE accounts. Under previous law, people with disabilities who saved more than $2,000 failed to qualify or risked the loss of their Supplemental Security Income (SSI), Medicaid, and other benefits. 

“For years, we’ve created incentives in the tax code to save for higher education or to save for retirement,” says Senator Bob Casey of Pennsylvania, who co-sponsored the bill. “Now at long last for Americans who have a disability, those families will be able to save—whether it’s to pay for health care or education, [or other] basic expenses.”

Before the ABLE Act, an individual with disabilities was penalized for holding assets, says Senator Richard Burr, the other co-sponsor of the bill. “It meant they couldn’t buy a car and have it be in their name,” he explains. “It meant that they could only earn so much before they were penalized. What we’ve done is we’ve changed the landscape.”

According to an analysis by the Congressional Budget Office, eligible expenses could include:

• 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
• other expenses to be determined by IRS
  
  

Here’s what you should know about the ABLE Act: 

• Any contributor—such as a family member, a friend, or the disabled person—can establish an ABLE account for an eligible beneficiary. An eligible beneficiary can have only one ABLE account, which must be established in the state in which he resides (or in a state that provides ABLE account services for his home state).
• An ABLE account may not receive annual contributions exceeding the annual gift-tax exemption. Additionally, a state must provide adequate safeguards to ensure aggregate contributions to an ABLE account do not exceed the state-based limits for 529 accounts.
• An eligible beneficiary would be a child who meets the SSI program’s disability standard for children or an adult who meets the SSI program’s disability standard for adults, provided that the adult’s disability occurred before he reached age 26.
• Qualified disability expenses would be any expenses made for the benefit of the disabled beneficiary related to 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; and any other expenses approved by the Secretary of the Treasury under regulations. 
• Earnings on an ABLE account and distributions from the account for qualified disability expenses would not count as taxable income of the contributor or the eligible beneficiary. Contributions to an ABLE account would have to be made in cash from the contributor’s after-tax income.
• Assets in an ABLE account and distributions from the account for qualified disability expenses would be disregarded when determining the qualified beneficiary’s eligibility for most federal means-tested benefits. For SSI, only the first $100,000 in each ABLE account would be disregarded.
• Assets in an ABLE account could be rolled over without penalty into another ABLE account for either the qualified beneficiary or any of the beneficiary’s qualifying family members. Any assets remaining in an ABLE account upon the death of the qualified beneficiary could be used to reimburse a state Medicaid agency for payments it made on behalf of the beneficiary.
• Aggregate contributions to an ABLE account cannot exceed the limits a state establishes for its qualified tuition (i.e., college savings) program. Most of those limits are in the $300,000-$400,000 range. As is the case for disability-related expenses, the IRS will write rules on the mechanics of distributions, including cumulative distribution limits—if any. We hope and will advocate for that to happen in short order.

In enacting ABLE, Congress understood that the needs of individuals with disabilities are ongoing: “The [House Ways and Means] Committee recognizes the special financial burdens borne by families raising children with disabilities and the fact that increased financial needs generally continue throughout the child’s lifetime.”

This article was reprinted with permission from AutismSpeaks.org.

Also see:

What to do When Family Doesn't Believe Your Child's Diagnosis

The Importance of Social Connections for Those on the Spectrum