The ABLE (Achieving a Better Life Experience) Act was passed by the U.S. Senate and House of Representatives earlier this month and was signed into law by the President on December 19, 2014. This is another victory for people with special needs and provides another financial planning tool to families and providers.
This blog will have more to say about ABLE accounts as we read further into the law and evaluate how ABLE plans work in the real world. In the meantime, this blog entry will review what an ABLE plan can and cannot do.
The ABLE creates an investment and savings instrument specifically for people with special needs. The law adapts the structure of a 529(b) plan–a tax free savings account used for specific purposes–for the ABLE Act. The most popular and widely known 529(b) plan is used for tuition and education expenses.
An ABLE account would be categorized as a 529(f) plan and qualified expenses include the following:
- employment support
- health, prevention and wellness
- legal fees
- home improvements
- personal support services
- funeral and burial expenses
- other expenses approved by the Secretary of Treasury
Apparently, anyone can open an ABLE account for a beneficiary. Further, only one ABLE account is permitted per beneficiary. The beneficiary must be a disabled person as defined by Title II or Title XVI of the Social Security Act or a person for whom a disability certification has been filed and approved by the Secretary of the Treasury. Further, the beneficiary must have been disabled before the age of 26. The person opening the account on behalf of the beneficiary is the account’s owner.
All contributions to the ABLE account must be in cash. Contributions are not deductible for federal income tax but they are deductible from state Income tax and this amount will vary from state to state. Amounts in the account accumulate on a tax-deferred basis.
An ABLE account may not receive aggregate contributions during a taxable year in excess of the amount of $14,000. An ABLE account may not have more than $100,000; beneficiaries that have accounts exceeding $100,000 will have his/her SSI benefits suspended until the account falls back below that threshold.
ABLE accounts may be rolled over into another qualified ABLE account for a family member or a designated beneficiary. The rollover may also be into a special needs payback trust or a special needs pooled trust. With respect to management, the owner and/or beneficiary cannot directly or indirectly make decisions on the investments of funds. Investment and management of the ABLE account must be assigned.
Investment managers or trustees that have control of an ABLE account are required to submit a notice to the Secretary of Treasury upon the establishment of an ABLE account. Ongoing reports or statements are to be sent to the Secretary and to the designated beneficiaries of the ABLE accounts. Report time is to be determined by the Secretary. Statements that detail distributions from ABLE accounts must be sent to the Commissioner of Social Security on a monthly basis.
Now that the bill has become law, each state must draft a bill to accept the Federal ABLE Law. The Federal Law will be the framework of each state’s laws. This process may take a year or more to complete. Until a given state has accepted the Federal ABLE Law and created the State Law, individuals can not open an ABLE account.