Special Needs Planning: An Introduction to ABLE Accounts

Families of those with special needs have historically had limited options when accumulating funds for their loved one’s future.  Especially, without jeopardizing their continued eligibility to Medicaid and other support programs.

As surprising as it may seem, accumulating as little as $2,000 in a disabled person’s name could potentially render them ineligible to receive much needed assistance and access to life-enhancing, state and federally sponsored programs.However, since the passage of the Achieving a Better Life Experience Act in 2014 (the ABLE Act), a total of 21 states, including North Carolina have now launched ABLE Savings Accounts.  These accounts, modeled after 529 college savings plans, allow those with disabilities and their families to put aside up to $15,000 per year (in 2018) without endangering benefits from federal and state means-tested programs.While every state’s ABLE program may vary somewhat, here are the major attributes:

  • “Authorized Individuals” like a parent, guardian or someone who has Power of Attorney may open the ABLE account. The Authorized Individual acts as a fiduciary and controls the account for the benefit of the Eligible Individual (the person with the disability). At all times, the Eligible Individual is both the Beneficiary of the account and the Account Owner.

  • Annual contributions of up to $15,000 (in 2018) are allowed for each person with a “qualifying” disability.

  • Qualifying disabilities must have started prior to age 26 and can be any of the following:

    • Those entitled to Supplemental Security Income (SSI) benefits, or Social Security Disability Insurance (SSDI) benefits based on blindness or disability.

    • Those with a medically determinable physical or mental impairment with marked and severe function limitations that has lasted, or is expected to last, at least 12 continuous months or result in death and have a written disability-related diagnosis signed by a physician.

  • While cumulative contribution maximums can vary by state, accounts up to $100,000 are not considered in determining eligibility for Supplemental Security Income (SSI) benefits.

  • ABLE accounts grow tax deferred and are actually tax-exempt when withdrawals are taken to cover “qualified disability expenses.”

  • Common examples of “qualified disability expenses” are education, housing, transportation, employment training, assistive technology, personal support services, legal fees, expenses for oversight and monitoring, and many others. Proposed Internal Revenue Service regulations even include basic living expenses as a qualified disability expense.

  • Distributions to cover expenses that are not considered qualified disability expenses, may be subject to federal and state income tax and a 10% penalty.

  • Some states actually offer a tax deduction on contributions into ABLE accounts. This varies on a state by state basis. North Carolina does not offer a tax deduction on contributions.

  • Investment options vary by state, but most states provide a nice menu of alternatives similar to 529 plans. In many cases, ABLE accounts allow access to “objective-based” investment options. For example, the NC ABLE program offers a “Growth Strategy” that invests in a variety of low cost index funds.

  • Upon the Account Owner’s death, the Member State has 60 days to file a claim against the ABLE account in order to be reimbursed for those expenses that the state covered. Any funds remaining after this reimbursement would go to the Account Owner’s estate.

For more information on ABLE accounts, we would suggest that you check out the ABLE National Resource Center (www.ablenrc.org).