Q-1 WHAT IS THE ABLE PROGRAM?
A. The ABLE program is short hand for the "Achieving a Better Life Experience" Act which is part of a new tax law that became effective January 1, 2015. The new tax law allows you to set up an income tax free savings program for the purpose of supporting someone such as a child or grandchild with disabilities without impacting their ability to qualify for certain needs based programs such as SSI and Medicaid.
Q-2 HOW DOES THE ABLE PROGRAM WORK?
A. Many people will be familiar with how it works because the ABLE program is much like the 529 plans that you can use to fund education. Just like the 529 plan you can make contributions to an ABLE account for the benefit of a child with disabilities that will grow income tax free. Also, if used for the proper purpose when the money is taken, out there is no income tax. The ABLE account is owned by the disabled individual.
Q-3 WILL THE ABLE ACCOUNT IMPACT THE DISABLED PERSON'S RIGHTS TO GOVERNMENT BENEFITS?
A. Generally the answer is no. The ABLE account will not impact the disabled person's rights to Medicaid. Also the ABLE account will not impact the disabled person's right to SSI (Supplemental Security Income) until the account balance exceeds $100,000 and then SSI would cease until the account drops below that limit. Also a distribution from an ABLE account for housing expense is not disregarded for SSI purposes and would reduce the SSI benefit by approximately one-third.
Q-4 WHO IS ELIGIBLE TO HAVE AN ABLE ACCOUNT?
A. A person who is blind or has a physical or mental impairment prior to turning 26 years old. You can show that the person qualifies if: (i) the individual is eligible for a benefit based upon blindness or disability under Title II or XVI of the Social Security Act or (2) there has been a certification of disability on file with the IRS. A parent or guardian can sign such certification but the certification must include a copy of diagnosis signed by a doctor. The certification must indicate that the disability is expected to result in death or last not less than 12 months.
Q-5 HOW MUCH CAN BE CONTRIBUTED TO AN ABLE ACCOUNT?
A. No more than $14,000 per disabled person per year. Each disabled person can have only one account and it must be in the state of his or her residence. For example a mother and father cannot each contribute $14,000 for the disabled child, only a total of $14,000 per year for a disabled person. This contribution amount is the same as the so called "annual exclusion" for gift tax purposes and is adjusted for inflation. The total contributions allowed to an able account are the same as for a 529 plan which in Ohio is $414,000.
Q-6 WHAT CAN THE ABLE ACCOUNT BE USED FOR?
A. Any expenses related to the individual's blindness or disability including the following expenses: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved in IRS regulations.
Q-7 WHAT ARE THE TAX CONSEQUENCES OF AN ABLE ACCOUNT?
A. If you follow the rules above, the account grows income tax free, the money paid from the account for proper purposes are not subject to income tax and there is no gift tax on the people contributing to the account. If you put in more than $14,000 in the account there is a 6% penalty tax each year on the excess. If money is not used for allowed purposes then the earnings will be subject to income tax and potentially a 10% penalty tax.
Q-8 WHAT HAPPENS TO THE MONEY THAT IS NOT USED?
A. Subject to any outstanding checks paid for qualified disability expenses, upon the death of disabled person, the State of Ohio will receive what is left in the account up to the amount equal to the total medical assistance paid for the disabled person after the establishment of the account.
Q-9 HOW DO I START AN ABLE ACCOUNT?
A. First the IRS is required to issue regulations by no later than June of 2015 and then Ohio must adopt the program.
Q-10 DO I STILL NEED TO HAVE SPECIAL PLANNING FOR A DISABLED PERSON?
A- Yes. The ABLE plan is only a small part of the part of the planning needed for a disabled person. You should meet with an attorney who specializes in planning for disability with government benefits and special needs trusts.
Copyright ©2015 Solomon, Steiner & Peck, Ltd. This article may be reproduced with proper attribution to the law firm of Solomon, Steiner & Peck, Ltd.