On December 3, 2014, the House of Representatives passed legislation that would allow qualifying disabled persons to establish tax-free savings accounts similar to 529 plans to pay for a host of expenses, including, but not limited to, housing, transportation, and medical expenses. The Achieving a Better Life Experience (ABLE) Act of 2014 is expected to be approved by the Senate, and would be effective for tax years beginning after December 31, 2014.
Similar to 529 Plans, each state could elect to establish an “ABLE” program. Contributions to the ABLE account could be made by any person. Such contributions would not be tax deductible and would be limited to $14,000 annually. Income earned by the account that is either reinvested or distributed to an eligible disabled individual would not be subject to income tax. The account could hold a balance of up to $100,000 without being considered an asset for eligibility under means-based benefits programs, such as Social Security Income (SSI) and Medicaid.
Similar to 529 Plans, the law would contain provisions dealing with distributions for non-qualified expenses and provisions dealing with what happens to the ABLE account funds on the disabled individual’s death.
This legislation presents an invaluable planning opportunity for families with disabled children, as parents would be able to establish a tax-exempt ABLE account for their disabled child without such an account being considered for SSI and Medicaid. Under current law, people with disabilities are generally disqualified from eligibility for SSI and Medicaid if they have more than $2,000 in assets.