We have previously wrote about the long-awaited arrival in California of the so-called ABLE accounts. Formally, known as an Achieving a Better Life Experience (ABLE) account, they are a low-cost, easy-to-access plan established by federal law that began rolling out in 2016 and is now available in California. Modeled after the so-called “529 accounts”, an educational savings program offered by individual states, ABLE accounts let children or adults with disabilities incurred before age 26 accumulate savings tax-free—for most, you can save as much as $100,000—without endangering much needed public benefits benefits, such as Supplemental Security Income (SSI) and Medi-Cal. Anyone, including the beneficiary, can contribute to these accounts, up the limit.
Some people may be permitted to put even more away in ABLE plans, thanks to recent tax law changes. Eligible individuals with disabilities who work can make up to $12,140 in earned income without endangering benefits, as long as they put it in their ABLE account. And those with a 529 college savings plan can roll that money over into an ABLE account.
Without access to an ABLE account, an individual with disabilities who has more than $2,000 in assets is at risk of losing their essential essential benefits.
ABLE Accounts Primer
ABLE accounts do have a major limitation—as noted above, you must have incurred the disability before age 26. But for many people with disabilities, these plans offer much-needed financial flexibility. To figure out whether an account is right for your needs, consider these key factors:
Under currently law, you must have had the disability officially diagnosed before turning 26. If you had an early diagnosis and you’re already receiving SSI or Social Security Disability Insurance (SSDI), you automatically qualify. If you aren’t receiving those benefits but your disability fits Social Security’s criteria, most plans let you “self-certify” by providing a doctor’s note and date of diagnosis.
Creating an ABLE account
You don’t have to live in a state with an ABLE program to open an account. Just as with 529 college savings plans, you can sign up with any state plan that is available nationwide a only a few are limited to state residents. Parents, guardians, or those with power of attorney can open an account on behalf of a minor or someone who needs assistance.
You can find information about individual state plans at the ABLE National Resource Center (www.ablenrc.org). Unlike 529 plans, only one ABLE account can be opened per eligible individual.
The maximum amount from all contributors is $15,000 per year, which matches the annual amount you can give an individual without incurring a gift tax. That amount will rise with inflation in future years.
The total ABLE account balance can grow to $100,000 without triggering SSI benefit losses, but that amount will not be adjusted for inflation. If that cap is exceeded, the individual’s SSI payments will be suspended until the account falls below the limit. In California, exceeding the $100,000 limit, does not affect Medi-Cal elibility. For those who are not receiving SSI benefits, you can save up to the 529 plan limit for that state, which in California is currently $529,000.
Qualifying expenses are typically paying for things that enhance a person’s health, well-being, and independence. In addition to basic living expenses, these accounts can be used to pay the cost of transportation, education, career training, and assistive technology.
Choosing an Account
Since you are not restricted to California’s own plan (www.calable.com), look at costs and investment returns. Most plans charge annual fees, typically $45 per year. California charges $37 per year.
Consider, too, how the beneficiary can withdraw money and manage the account. Some plans have debit cards, while others don’t. And in cases where a family member will want to manage or monitor the account on behalf of the beneficiary, check the plan’s rules for becoming a designated representative.
- Living Trusts and Incapacity Planning - March 31, 2020
- Estate Planning and Charitable Giving — Key Points - March 29, 2020
- Over-Funding Your Retirement Plan: A Potential Estate Planning Problem - March 27, 2020