- By KaseyC
- With No Comments
- On 9 Jul | '2015
Long Overdue ABLE Account Regulations
The Achieving a Better Life Experience (ABLE) account provision became law late in 2014. The loved ones of those living with disabilities can now fund accounts, up to $14,000 per year, and as long as withdrawals are for disability-related expenses, they will be tax-free. These accounts will serve millions of people who have desperately needed the IRS to get behind this measure. This might be the best thing the IRS has ever done.
In June, six months after these accounts became law under Section 529 of the U.S. tax code, the IRS has clarified what will be considered qualified expenses. They took a very broad view of what will qualify as an approved expense. Millions rejoiced in this leniency as now their loved ones who are living with disabilities will have access to funds to buy things that will enhance their lives, like a tablet for instance, and not have to produce receipts and reasons regarding why it should be an approved expense.
The way ABLE accounts are structured now, any expenses must simply serve to enhance the quality of life of a person living with a disability without the requirement of proving medical necessity.
Annuitizing Care for Your Loved One
Having a child with a disability is very hard. Most parents can start to release the grip on their children once they head off to college. For parents of individuals with disabilities, they can never fully let go. Concern for their well-being is enough to keep them awake at night. This concern continues well into their adult years, if the disability persists. It is wonderful that these accounts are in existence as parents can now basically build an annuity for their loved one.
Over the course of many years, that money will grow and serve to take care of their loved one long after they are gone. This provides such relief to people who live with the certainty that someday they will no longer be here, leaving their disabled loved one to fend for themselves. It is a heartbreaking story that these ABLE accounts can now serve to make a little less upsetting for all parties concerned. Implementation of ABLE accounts was long overdue.
Eligibility for Means-Tested Programs Remains Unaffected by ABLE Account Values
One of the most important features of these accounts is that the values are not counted as an asset of the disabled person when calculating their eligibility for federal means-tested programs, like Medicaid and Supplemental Security Income (SSI). This is a very important feature of ABLE accounts as means-testing has served to discourage savings in the past.
This allows for planning for the future without having to worry about being negated from inclusion in necessary government programs, like Medicare for example. Another important provision is the protection of these accounts in the event of bankruptcy. As long as donations were made up to 2 years prior to filing for bankruptcy, they are generally shielded from these proceedings.
There are limits about how much money can be in an ABLE account before government benefits will be suspended. Should the assets in an ABLE account reach $100,000, and the disabled individual is receiving SSI, their SSI benefits will be placed in suspension until the account value is under $100,000 again. SSI benefits will resume at that point.
Medicaid eligibility will not be affected by the amount of funds held in an ABLE account even in the event of SSI suspension. One important thing to remember regarding Medicaid is if the person is no longer considered disabled, all funds held in an ABLE account will be used to payback any State Medicaid plan up to, but not to exceed, the value of services provided.
Different from College 529 Plans
ABLE accounts and college 529 plans are both authorized under the same section of the tax code. Although there are several similarities, these accounts differ in a few very specific ways. College funds can be purchased in any state, and each person can have several 529 plans in their name.
ABLE accounts can be opened only in the state where the disabled person resides, and they can only have 1 account in their name. Aside from this slight limitation, these accounts will now serve a void when estate planning for families with disabled children. ABLE accounts will not solve every problem for these families and individuals living with disabilities, but it is a very important step in the right direction.
I’m a Tax Professional based in New Hampshire. Blogging about Tax and Accounting topics is my thing!
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