Achieving A Better Life Experience Act (ABLE Act)
The idea behind the ABLE Act is to provide disabled individuals with the ability to save through accounts modeled after current 529 plans (college savings plans) without losing their needs-based government benefits.
Effective DateEffective for taxable years beginning after December 31, 2014 - effective January 1, 2015.
Each State has the option to establish an ABLE account program, but each State is not required to.
In those states who do not establish an ABLE account program, the state may enter into a memorandum of understanding with another state who has established an ABLE account program to permit its residents to establish ABLE accounts in that other state.
Federal regulations have now changed the requirement that an individual must be a resident of the state in which an ABLE account is opened. ABLE accounts may now be opened in any state that permits enrollment by out-of-state residents even if the state of residency has not entered a memorandum of understanding with that state (so long as the state of residency does not expressly prohibit such enrollments)
]Legislation must be passed in each state to establish an ABLE account program for that state.
On June 30, 2015, Governor Robert Bentley of Alabama signed enabling legislation in Alabama,
implementing the ABLE Act in Alabama. However, it is now up to the State Treasurer to create the regulations and implement the ABLE account programs for the state of Alabama. As of right now, State Treasurer, Young Boozer has indicated that he believes it is too expensive to administer an ABLE account program in Alabama, but that the department is still evaluating efficient solutions. For now, Alabama residents may enroll in one of the 3 state programs that accept out-of-state residents: Ohio, Nebraska, or Tennessee.
Who Can Have an ABLE Account?An ABLE Account may only be established by:
1. An individual diagnosed as severely disabled before age 26 and who is receiving SSI or SSDI; or
2. An individual diagnosed as severely disabled before age 26 and certified as meeting conditions similar to that required by SSI or SSDI
o Any individual who has been diagnosed with a disability before the age of 26 years old, who has 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 is blind, and provides a copy of their diagnosis signed by a physician.
The key to qualification is written documentation of a diagnosis before age 26 or qualification for SSI or SSDI before age 26.
How Many ABLE Accounts Can a Disbaled Person Have?Each disabled individual is limited to 1 ABLE Account.
WHO CAN MAKE CONTRIBUTIONS TO AN ABLE ACCOUNT?Anyone
How Much Can Be Contributed to an ABLE Account?o Annual Contribution Limitation:
o The maximum total amount per year than can be contributed to an ABLE Account is the amount of the gift tax exclusion.
o $14,000 (2015 gift tax exclusion).
o Even if multiple individuals contribute to an ABLE account, the total aggregate amount contributed by all donors cannot exceed $14,000 (currently).
o Accumulation Limitation:
o The maximum amount an ABLE Account can hold at any one time is equal to the State's 529 accumulation limitation.
o $350,000 is the maximum accumulation limitation in Alabama currently.
? Note: It takes 25 years of annual $14,000 contributions to reach this maximum limitation (not considering withdrawals or growth).
o SSI Accumulation Limitation:
o For purposes of SSI, the maximum amount an ABLE Account can hold at any one time is $100,000.
o If the ABLE Account exceeds $100,000, SSI benefits are suspended until the account drops below $100,000
o Under federal law, Medicaid is not affected if the ABLE Account exceeds $100,000 so long as it stays below the 529 plan accumulation limitation
What Can Be Contributed to an ABLE Account?o Only Cash.
o No stocks, tangible personal property, real estate, etc. can be contributed to an ABLE Account.
What are Permissible Uses of an ABLE Account?ABLE Account funds can be used for the following qualified disability expenses:
o Employment Training and Support;
o Assistive Technology and Personal Support Services;
o Prevention and Wellness;
o Financial Management and Administrative Services;
o Legal Fees;
o Expenses for Oversight and Monitoring; and
o Funeral and Burial Expenses.
If ABLE Account funds are used for non-qualified expenses, the withdrawal is subject to regular income tax and a 10% federal withdrawal penalty (state penalties may also be assessed).
Where Can an ABLE Account be Opened?o An ABLE Account may be opened in the state of the account holder's residency (if an ABLE account program exists in that state) or any state's ABLE account program that accepts non-residents so long as the state of residency does not expressly prohibit such enrollment (Alabama does not expressly prohibit such enrollment).
What Happens at the Death of an ABLE Account Owner?o ABLE Accounts are subject to Medicaid Payback Liens.
o An ABLE Account is a 529 plan with a lien.
o At the death of the disabled individual, any amount remaining in the ABLE Account must first be paid to satisfy any Medicaid Liens, which are based on the amounts paid by Medicaid for the disabled individual since the time of the creation of the ABLE Account.
o Ideally, funds in the ABLE Account should be expended before death.
o ABLE Account funds should be used before withdrawing from a third-party settled special needs trust, as these trusts are not subject to a Medicaid Lien.
Other ABLE Act Featureso TAX FEATURES
o Contributions to an ABLE Account are NOT tax deductible.
o Income earned by an ABLE Account is NOT taxable.
o Account withdrawals, including portions attributable to investment earnings generated by the account, for qualified expenses, are not taxable.
o Account withdrawals for non-qualified expenses are taxable and are subject to a 10% federal penalty and possibly a state penalty.
o Contributions to an ABLE Accounts do not qualify for the gift tax exclusion, because they are not considered a completed gift. Instead, contributions for gift tax purposes must be shielded by utilizing a portion of the unified credit, to the extent available.
o INVESTMENT LIMITATION
o ABLE Account programs will be administered like a 529 program.
o Range of investment options are determined by the State's program.
o ABLE Account owners may only direct the investment of contributions (or any earnings thereon) no more than 2 times in any calendar year.