What You Need To Know About The ABLE Act and Tax Free Savings Accounts

The Able Act

One of the biggest hurdles parents of children with special needs face is preparing for the future.  With income restrictions on many benefit programs, it can be difficult for parents to plan for their child’s future needs.  Recently, however, Congress has introduced legislation called the Achieving a Better Life Experience (ABLE) Act, which would enable parents of special needs children to have a tax-free savings account similar to a college savings account to provide funds for the future care of their children.

What is the ABLE Act?

The ABLE Act was introduced in 2012 and enjoyed wide bipartisan support in both the House and Senate.  Because it was never called for a vote, it was reintroduced in 2013 as H.R. 647 (introduced by Rep. Ander Crenshaw, R-FL) and S. 313 (introduced by Sen. Robert Casey, D-PA).  As of February 15, 2013, the bill was referred to the House Subcommittee on Health and the Senate Subcommittee on Finance.  The authority to create the accounts would be created under a new sub-section of the IRS code governing Qualified Tuition programs (529(f) of the Internal Revenue Code).

How The Able Act Works

Under the ABLE Act, families would be able to set aside funds into a tax-free savings account.  The funds could be withdrawn to cover costs associated with health care, employment, housing, transportation, and education.  The funds would supplement but not replace benefits provided by Medicaid, Social Security, and private insurance and would not jeopardize a child’s eligibility for federal benefit programs.

Ander Crenshaw

U.S. Rep. Ander Crenshaw of Florida is sponsoring the Achieving a Better Life Experience Act, also known as the ABLE Act, that will help people caring for individuals with special needs.

The accounts would allow families to provide for extra costs associated with every day activities and community inclusion.  The accounts would be available in any state, and have the same tax structure of traditional college savings accounts.

The income earned in the account is not taxed and withdrawals for qualified disability expenses are also tax-free.  Contributions to the account, like traditional college savings plans, are considered tax-free gifts for purposes of the IRS.  Thus, while there is no maximum or minimum that can be put in the account, the contribution would only be tax-exempt up to $14,000 each year.  However, each parent is allowed to make a contribution for a total of $28,000 each year, tax-free.  Should the ABLE Act pass, parents are encouraged to contact a tax or financial planning expert for more information.

Lauren Potter of Glee about the ABLE Act

What Expenses Are Allowed Under the ABLE Act?

The ABLE Act allows tax-free withdrawals of funds from the account for qualified disability expenses.  These include:

Health Care, Prevention and Wellness:

  • Premiums for health insurance
  • Mental health, medical, vision, and dental expenses
  • Habilitation and rehabilitation services
  • Durable medical equipment (DME)
  • Therapy
  • Respite care
  • Long-term services and supports
  • Nutritional care
  • Communication services and devices
  • Adaptive equipment
  • Assistive technology
  • Personal assistance

Employment Support:

  • Expenses relating to obtaining and maintaining employment
  • Job-related training
  • Assistive technology
  • Personal assistance supports

 Housing:

  • Rent (primary residence)
  • Home purchase (primary residence)
  • Mortgage payments
  • Home improvements and modifications
  • Home maintenance and repairs
  • Property taxes
  • Utilities

Transportation:

  • Mass transit costs
  • Purchase and/or modification of a vehicle
  • Moving expenses

Education:

  • Tuition (preschool through post-secondary education)
  • Books
  • Supplies
  • Tutors
  • Special Education Services

Other Expenses:

  • Financial management
  • Account administration services
  • Legal fees
  • Expenses for oversight or account monitoring
  • Funeral and burial expenses
  • Assistive Technology and Personal support expenses are allowed as they pertain to any of the above categories.

It is possible that this list will change if and when the bill is approved and regulations are developed.

Who Qualifies for an ABLE Account?

Any person receiving SSI or SSDI or any person who has a “medically determined physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months,” or one who is blind.

Persons may need to provide a copy of their diagnosis signed by a physician, or an affidavit (signed statement) from a parent or guardian regarding the child’s diagnosis and functional limitations.

How will the ABLE Account Impact My Child’s Federal Program Benefits?

Those with an ABLE Account will still be eligible to receive Medicaid benefits and SSI.  However, when the amount in an ABLE Account reaches $100,000, any monthly SSI benefits would be placed in suspension.  If the account drops below $100,000, the monthly SSI benefits would resume (meaning the person would not have to re-apply for SSI).

Also, in the event the beneficiary dies or is no longer considered to have a disability and there is money remaining in the account, that money would be given to any State Medicaid plans that provided medical assistance.  The amount of Medicaid payback would be calculated based on amounts paid by Medicaid only after the ABLE Account was created.

What Happens Next?

The bill is currently being reviewed by legislative committees.  Thus, the language and details of the legislation may change.  If the bill gets approved and signed into law, the IRS would then develop regulations to implement and administer the rules governing the accounts.  This process takes time and there is no guarantee that the bill will be passed or that it will look the same as it does as of the time of this publication.  However, parents are encouraged to contact their Representatives and Senators to urge them to support the bill.  To stay up-to-date on the latest happenings with both the Senate and House versions of the bill, please click the links below:

Link to the House Bill: http://thomas.loc.gov/cgi-bin/query/z?c113:H.R.647:

Link to the Senate Bill: http://thomas.loc.gov/cgi-bin/query/z?c113:S.313:

Melissa Stuart
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  • Marcella S

    So appreciative of the thorough information about the ABLE account. There are so many rules, red-tape, agencies, paperwork, therapies, etc. it is hard to keep up-to-date on every aspect that can significantly impact a person of special needs along with their family members.

    THANKS SO MUCH1

  • Andrew B.

    Thank you Melissa BUT, regarding the issue of surrendering money to any State Medicaid Plan upon death, why would the ABLE ACT be more advantageous than a Special Needs Trust?

    • http://www.facebook.com/vtmel Melissa Stuart

      Andrew, You raise a good point. Without knowing how the final law and regulations would look if the bill gets approved, it is hard to say at this point. However, I think the intention behind it is to create another option for families of children with special needs. On its face, it would appear to be more flexible (i.e., wouldn’t necessarily require a trustee or fees to set one up or administer the funds). At this point, only time will tell how options like this play out in the real world.

    • http://www.facebook.com/joe.meares Joe Meares

      Andrew, there will still be a need and place for SNT. However, most are funded @ death with insurance. ABLE allows savings and withdrawls for QE as the account owners need the funds. Also, SNT are expensive and usually not transportable. Surrendering the ABLE accout to satisfy MC is really the only way the bill will get passed. Once passed, as an account holder gets a good chunk in the account, thats really when a SNT is needed to work on concert with ABLE.

  • http://twitter.com/ElderPlanning Christopher W. Smith

    Thanks Melissa. I personally agree with you that the more tools the better. But it certainly does not replace a proper estate plan with a third-party trust (pooled or not), which does not require a state pay back. A third-party trust can also be simple and cheap to set up with great expert organizations like the Arc of Indiana. So yes, it will be another tool, but maybe not the best tool for many or most families.

    Say ‘hi’ to Vess for me.

  • http://www.facebook.com/sylvia.castellano.3 Sylvia Castellano

    you can also establish a special needs trust for your child and then at the childs death state that the money goes to the remaining sibling or relative. Also the able account is still investing in the stock market and money market accounts that are not guaranteed. Also 100,000 dollars for the course of a life time isn’t alot of money if you go one penny over you lose your benefits and have to go through all the read tape to re apply.

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  • cam

    What qualifies someone as “disabled”? Im all for this so long as it isn’t another way to make it easier for freeloaders to leach off the system over something like a broken arm or leg…

  • Sheryl Ann Kuenzer

    I would like to travel some day and under the law as it stands at the present time I am only allowed to save $2000. Most tours are over $2000, my question is this if I save under the ABLE Act would I be allowed to use monies for going on trips? Who can put money into the account?

  • Jack Lancellotta

    Propose legislation as the SSI SAVERS ACT, SUPPLEMENTAL SECURITY INCOME RESTORATION ACT and the (A)chieving a (B)ETTER (L)IFE (E)XPERIENCE or A.B.L.E. ACT are vitally needed for our millions of DISABLED & POOR ELDERLY that have been unfairly treated since the inception of these laws and morally, ethically and subsistently, require much more care and assistance than average or wealthy citizens …

    … and thus, should not have to struggle and live with the burden of unreasonable Asset Testing / Resource Limits with penalties that are overwhelmingly harsh, outdated and extraordinarily unfair – pass such regulatory
    changes for the DISABLED! = Thank You!

    The A.B.L.E. Act should be
    flexible for those Disabled Citizens to have oversight and control of their account and personal lives!