An ABLE account is a type of savings account designed for people who were diagnosed before age 26 as blind or disabled. Anyone can contribute cash to fund the savings account, up to an annual limit of $14,000 per year per beneficiary. Eligible beneficiaries are limited to having one ABLE account at a time.

ABLE accounts are set up through a state-run ABLE program. Congress authorized the creation and use of ABLE accounts as part of the Achieving a Better Life Experience (ABLE) Act of 2014, which was enacted into public law along with the Tax Increase Prevention Act of 2014.


Since this law was only recently enacted (December 19, 2014), no states have established an ABLE program and begun offering ABLE savings accounts. Thus we don't know yet which states will set up ABLE programs, what types of investments will be offered, and what sort of fees and costs will be associated with ABLE accounts.

ABLE savings accounts have three tax-related benefits. (1) The ABLE savings account balance is not counted as a resource or financial asset for some federal assistance programs. (2) Further, interest and other investment income generated inside the ABLE account accumulates tax-free. (3) Distributions made from an ABLE account are tax-free as long as the distribution amount does not exceed the qualified disability expenses that the beneficiary has during the year.

We are also waiting on further guidance from the IRS.

ABLE accounts are expected increase federal outlays by $2.051 billion over a ten-year period from 2015 through 2024, based on budget estimates from the Joint Committee on Taxation.

Those increased federal outlays are being offset by $2.084 billion in decreased federal outlays, which consist of a mixture of revenue raisers from increases in tax penalties and cost savings from changes to Medicare. (See JCX-108-14, link below, for the budget details.)

ABLE Accounts
Contributions	· Not tax-deductible · May be made by anyone to the account of a designated beneficiary · Limited to $14,000 per beneficiary per year
One Account Rule	· Beneficiaries may have at most one ABLE account at a time.
Distributions	· Tax-free if less than or equal to qualified disability expenses · Taxable (plus a 10 percent surtax) if more than qualified disability expenses
Individuals eligible for an account	Before reaching 26 years old, the individual became:  · Blind;  · Impaired, physically or mentally, and the impairment has lasted or is expected to last for at least 12 continuous months or is expected to result in death;  · Entitled to Social Security benefits due to disability or blindness
Can change designated beneficiary	· If the new beneficiary is also eligible and is related to the former beneficiary
Qualified disability expenses	· Education · Housing · Transportation · Employment training and support · Assistive technology and personal support services · Health care · Financial management · Legal fees · Funeral and burial expenses
Disregarded as an asset	· Distributions for housing count as a resource for SSI · If account balance is over $100,000, the amount over $100,000 counts as a resource for SSI · Otherwise, ABLE accounts are disregarded as an asset for federal means-tested programs
Gift tax	· Contributions to an ABLE account count as gifts, which might have to be reported on a gift tax return. · Donors cannot use the gift tax exclusion for educational or medical expenses for contributions to an ABLE account. · Distributions cannot be treated as a taxable gift.
Administration	· ABLE program is set up and run by a state · Must provide separate accounting for each designated beneficiary · If a state doesn't have an ABLE program, they can contract with another state that does have an ABLE program to grant their residents access to the other state's program.
Investment decisions	· Beneficiary may direct how funds are invested up to two times per year.
Collateral	· ABLE accounts cannot be pledged as interest or security for a loan
Rollovers	· Must be completed within 60 days · Limited to one per year · Can only rollover from or to another ABLE account
Removing Contributions	· Contributions withdrawn from the ABLE account on or before the April 15th deadline (or October 15th with an extension), along with any earnings on those contributions, is a non-taxable event.
Reporting	· ABLE programs report monthly to Social Security on account balances and distributions. · When an ABLE account is established, the ABLE program reports the name and state of residence of ABLE account beneficiaries to the Treasury Dept.
Upon Death of the Beneficiary	· The ABLE program distributes any outstanding payments for qualified disability expenses, then any remaining funds can be transferred to the state.

 

ABLE Accounts and Supplemental Security Income

According to the Social Security Administration:

"The State would set the maximum balance for ABLE accounts.  In any case, the first $100,000 in balance would not count toward SSI eligibility (as a resource).  Furthermore, if the balance exceeds $100,000 and the amount in excess causes an SSI beneficiary to exceed the SSI resource limit, then the beneficiary’s SSI benefits would be suspended without time limit, but not terminated.  Additionally, the beneficiary would retain eligibility for Medical Assistance while in suspension."

"Contributions to and qualifying distributions from an ABLE account—with the exception of distributions for housing—would not affect SSI eligibility or payment amount.  Qualifying distributions are defined broadly and include such expenses as education, housing, transportation, employment support, assistive technology, and health and wellness expenses.  The Treasury would further define these expenses.  State ABLE account administrators would be required to send SSA electronic statements of relevant distributions on a monthly basis in a manner specified by the Commissioner."

From Social Security Legislative Bulletin Number 113-36, "Senate Passes H.R. 5771, which includes the Achieving a Better Life Experience Act of 2014 (ABLE Act)," December 17, 2014. URL: http://www.socialsecurity.gov/legislation/legis_bulletin_121714.html.

Transfer to the State upon the Death of the Beneficiary

According to a description provided by the Joint Committee on Taxation, "in the event that the designated beneficiary dies ..., subject to any outstanding payments due for qualified disability expenses incurred by the designated beneficiary, all amounts remaining in the deceased beneficiary’s ABLE account not in excess of the amount equal to the total medical assistance paid for such individual after creation of the account under any State Medicaid plan established under title XIX of the Social Security Act shall be distributed to such State upon filing of a claim for payment by such State. Such repaid amounts shall be net of any premiums paid from the account or by or on behalf of the beneficiary to a Medicaid Buy-In program." (JCX-94-14, see link below.)

Further Reading about ABLE Accounts

Joint Committee on Taxation, Description of H.R. 647, the "Achieving a Better Life Experience Act ('ABLE Act') of 2013" (JCX-94-14), July 29, 2014. URL: https://www.jct.gov/publications.html?func=startdown&id=4660 (Downloads as PDF file after accessing that Web page.) [NOTE: this description discusses a previous version of the ABLE Act.]

Joint Committee on Taxation, Estimated Budget Effects Of H.R. 647, The "Achieving A Better Life Experience ('ABLE') Act Of 2014," (JCX-108-14), December 3, 2014. URL: https://www.jct.gov/publications.html?func=startdown&id=4676 (Downloads as PDF file after accessing that Web page.)

Congressional Budget Office, Cost Estimate (Letter of December 2, 2014, to Dave Camp). URL: https://www.cbo.gov/publication/49814 (From there one can access a PDF file to download.)

HR 5771, Tax Increase  Prevention Act of 2014 (which includes HR 647, Achieving a Better Life Experience Act of 2014), Public Law 113-295, from Congress.gov: summary | full text | full text as PDF

Michael Kitces, Tax Extenders Reinstated Temporarily, But ABLE Act Of 2014 Will Permanently Change 529 Plan Landscape For Special Needs Beneficiaries, December 17, 2014.