A recent rules change makes it easier for disabled individuals younger than 26 to open and maintain a tax-deferred Achieving a Better Life Experience account.
Congress authorized these accounts in 2014. The Service proposed enabling regulations in 2015, and revised these proposals in 2019, in light of the 2017 tax cuts. Some highlights, which were influenced by the coronavirus outbreak and its financial dislocations, include account rollover features and an additional saver’s credit. The proposal also expands the definition of qualified disability expenses.
The changes become final when they are published in the Code of Federal Regulations.
Account Eligibility
ABLE accounts are 529A tax-deferred savings accounts. Most people are familiar with 529A accounts as college tuition savings accounts.
For the most part, children can borrow their way through college and make the loan payments after they graduate. But many parents want their children to have a higher standard of living. So, they open 529A accounts, make tax-deductible contributions, and pull the money out to help pay college expenses.
Likewise, Social Security Disability benefits are usually high enough for individuals to live independently, or at least semi-independently. But many parents want their disabled children who become disabled adults to have a slightly higher standard of living. That’s where a 529A ABLE account comes in.
About half of U.S. states offer ABLE accounts. Account eligibility and rules vary in different states. Generally, the account beneficiary must be an individual who began receiving Social Security Disability benefits before age 26. Anyone, including the beneficiary, can contribute to a 529A account. The beneficiary may use the money for:
- Housing,
- Education,
- Assistive technology,
- Job training,
- Financial management,
- Wellness,
- Legal fees,
- Administrative services, and
- Any other services or items reasonably necessary to improve or maintain the beneficiary’s independence, physical health, or quality of life.
Contribution limits vary in different states, but generally, they may not exceed $15,000 per year. That’s the same level as the gift tax contribution exemption. Click here to compare the ABLE account rules in different states. Neither beneficiaries nor contributors must be residents of the state where the ABLE account is located, at least in most cases.
Beneficiaries should retain receipts for their ABLE disbursements in case the IRS audits them. That doesn’t happen very often, but an ounce of prevention is usually worth a pound of cure. It’s much easier to keep track of disbursements as they are made, rather than go back and reconstruct them later.
ABLE Accounts, Social Security Benefits, and SSI Disability Lawyer in Memphis
Lawmakers intended the 2014 ABLE Act to supplement SSD benefits and not to replace them. Essentially, expanding the 529A savings account rules was cheaper than increasing SSD benefits to give recipients a better quality of life. As such, an ABLE account does not torpedo your SSD benefits. But it could affect them.
As far as the Social Security Administration is concerned, beneficiary contributions to an ABLE account are countable earnings. As such, the SSA uses work incentives to determine if the beneficiary is engaged in substantial gainful employment. An SGA finding could sharply limit disability benefits. Non-beneficiary ABLE contributions do not affect the beneficiary in any way.
Social Security Insurance is more complex. Most children never think they will be old enough to receive age-related Social Security benefits. But that day does eventually arrive, at least in most cases.
At this point, the first $100,000 in the ABLE account is exempt from SSI’s $2,000 individual resources limit. So, if the ABLE account balance is above $100,000, the SSA normally suspends SSI payments. A high account balance normally does not affect Medicaid eligibility, but since individual states administer Medicaid, these rules vary.
All these rules are quite intricate. To make things easier, a Heermans Law Firm attorney (SSI lawyer near me) might be able to set up a Medicaid planning trust or other vehicle that preserves your eligibility for all government benefits and maximizes your ABLE account.
ABLE Accounts vs. Special Needs Trusts
Speaking of trusts, the special needs trust is the leading alternative to an ABLE account. Depending on your family’s situation, either one might be right for you. At Heermans Social Security Disability Law Firm, we can help you set up either one.
Convenience is the biggest advantage of an ABLE account. Almost anyone can visit a bank and set one up. The beneficiary usually has complete control over these accounts, at least in terms of withdrawals. That’s very empowering for many people struggling with lifelong disabilities. Furthermore, as mentioned, the interest is tax-free and these accounts are largely immune from gift tax restrictions.
However, there are some serious drawbacks to ABLE accounts. At the same time, there are some noteworthy advantages to a special needs trust.
Most states only allow people who began receiving disability payments before age 26 to open ABLE accounts. In most cases, states do not use the onset of disability date. They use payment beginning date.
Assume Jim is in a serious car accident when he is 18. He struggles to live independently and moves back home at age 22. When Jim is 24, he applies for Social Security Disability payments. Because of various appeals, Jim does not begin receiving benefits until he is 26. Jim is unable to open an ABLE account in most states.
There’s also a difference between a physical disability and a mental disability, especially in this context. Mentally disabled individuals legally lack the capacity to take care of themselves. Giving these individuals unfettered access to a bank account could be a bad idea. Some states allow ABLE co-account holders, but most do not.
Finally, when ABLE account holders die, the government may seize any money in the account to reimburse Medicaid. The remainder passes through probate. The remainder of the remainder, which is usually almost nothing, goes to the heirs. Special needs trusts never go through probate and usually cannot be tapped for Medicaid reimbursement. That means the heirs get most or all of the funds in the trust.
The Heermans SSA law firm can help make it as likely as possible that you are approved for Disability benefits. Never rely on a self-help Internet site to obtain Disability benefits. Work with an attorney from the Heermans Social Security Disability Law Firm. We are available during COVID-19 via phone, Video Chat and email and we offer free evaluation consultations. Call us today at (901) 244-0057
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