Before winding up the legislative session last year, Congress enacted a law which allows for tax-free savings accounts that can be used for disability-related expenses. The “Achieving a Better Life Experience (ABLE) Act of 2014,” signed by President Obama last month, creates a new tax-advantaged savings program that can be created either by disabled individuals to support themselves or by families to support their disabled dependents, all without losing access to Medicaid and SSI income. The new law applies for tax years beginning after Dec. 31, 2014.

tax_credits_low_resQualifications

Eligible individuals must be blind or disabled, and must have become so before turning 26, and must be entitled to benefits under the Supplemental Security Income (SSI) of Social Security Disability Insurance (SSDI) programs, though not necessarily a recipient of either program. An individual can also become eligible if a disability certificate for the individual is filed with the IRS.

Tax-Free Savings

While no federal tax benefits are provided for those who contribute to an ABLE account, assets can be accumulated, invested, grown and distributed free from federal taxes, as long as the funds are used to pay qualified expenses.  Each disabled person is limited to one ABLE account and total annual contributions by all individuals to any one ABLE account can be made up to the gift tax exclusion amount of $14,000. Aggregate contributions are subject to the state limit for education-related Section 529 accounts.

Covered Expenses

Expenses qualify as disability related if they directly benefit the disabled individual. Examples include:

  • Health, prevention and wellness
  • Education
  • Housing
  • Transportation
  • Employment support
  • Assistive technology and personal support services
  • Other IRS-approved expenses

Impact on Medicaid/SSI

ABLE accounts have no impact on Medicaid or SSI, though SSI payments are suspended while a beneficiary maintains excess resources in an ABLE account. The first $100,000 in ABLE account balances is exempted from being counted toward the SSI’s program$2,000 resource limit.

Account distributions for housing expenses, however, are counted as income for SSI purposes. Given that the individual has no other assets, if the balance of the ABLE account exceeds $102,000, the individual is suspended, but not terminated, from eligibility for SSI benefits but remains eligible for Medicaid.

If you’d like to discuss ABLE accounts or other tax savings opportunities, please contact Jim Sacher, CPA, at 440-605-7145 or jsacher@skodaminotti.com.