On December 19, 2014, President Obama signed into law the Achieving a Better Life Experience (ABLE) Act.  This Act amended Section 529 of the Internal Revenue Code of 1986 to allow the creation of tax-advantaged savings accounts for individuals with disabilities. The Act authorized the States to create their own ABLE savings account programs.

What Is An ABLE Account and How Does It Work?

• An ABLE account is funded with post-tax contributions from anyone, including the individual with disabilities, and are not tax-deductible.
• The disabled individual is the owner of the account and the beneficiary.
• Income earned by the account is not taxed.
• Eligibility is limited to individuals with significant disabilities with an age of onset of disability prior to turning age 26.
• An eligible individual may have only one ABLE account.
• Currently, the total annual contributions by all participating individuals, including family and friends, is $14,000 per single tax year (this amount may be adjusted upward for inflation).
• The first $100,000 of in an ABLE account is exempt from the SSI individual $2000 resource limit (if the account balance goes over $100,000, the person’s eligibility for the SSI cash benefit will be suspended.  It will have no effect on their ability to continue receiving medical assistance through Medicaid, unless the account goes over $418,000, at which time Medicaid eligibility would be lost.
• When the disabled individual dies, the State in which the beneficiary lived can file a claim against the balance of the account for charges paid by Medicaid after the date of the creation of the ABLE account, so it is subject to Medicaid payback.
• Distributions out of the account for qualified disability expenses are tax exempt.   A qualified disability expense is an expense to the beneficiary as a result of living a life with disabilities, and may include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services or other expenses which help improve health, independence or quality of life.
• ABLE accounts within each State will offer different investment strategies based on risk tolerance and the States will have different set up costs, account fees and management fees.  Florida has seven different investment options that cover varying degrees of risk.
• You can only change how the investments are managed in your account two times per year.
• An ABLE account will have lower set up costs, administration fees and management fees than a Pooled Trust or a Supplemental/Special Needs Trust (SNT).
• However, a Pooled Trust and SNTs are still viable strategies for planning for individuals with developmental disabilities.  For example, a Third Party Special Needs Trust in the author’s opinion is still a better planning option than an ABLE account because:  1) there is no limit on how much you can put into a Third Party SNT, 2) there is no requirement that distributions out of the SNT be made for qualified disability expenses, and 3) there is no Medicaid payback with a Third Party SNT.

As of the date of this blog post, only Florida, Ohio, Nebraska and Tennessee have set up their ABLE Act Savings Programs.

The Act authorized the States to have discretion in how the programs are set up.  So, some States have ABLE savings programs that are open to individuals who are residents of another State.  Florida is NOT one of those States.  Our ABLE savings program is only open to eligible disabled Florida residents.  The Florida ABLE Savings Program’s website is http://www.ableunited.com/.  The Savings program is administered by Florida’s Prepaid College Board.

Ohio’s STABLE Account Program, Tennessee’s ABLE TN and Nebraska’s Enable Savings Plan programs are ALL nationwide ABLE savings plans.   Thus, no matter of which State the disabled individual is a resident, an ABLE Savings Account can be opened on behalf of that person in one of those three States.

Here is a link to a great matrix of the ABLE programs nationwide:  http://www.thearc.org/what-we-do/public-policy/issues/able-program-implementation

Here is a link to the ABLE National Resource Center, which provides a lot of information on ABLE accounts.   http://ablenrc.org/

The ABLE Account is a new tool in an expanding toolchest for the special needs planning attorney.