At the end of December 2014, Congress instituted a new type of savings account for people with disabilities who became disabled before they turned 26. Called “529A” or “ABLE” accounts, these allow individuals and families to set aside up to $14,000 a year in tax-free savings account without affecting eligibility for government benefits. Contributions are in after-tax dollars but earnings grow tax-free. 529 ABLE accounts are established in the beneficiary’s name but contributions into an ABLE account can be made by any person. It is important to note, that the beneficiary has control over the spending from the accounts. Unlike other types of special needs trusts, disbursements from the fund are more limited to certain qualifying expenses such as the costs of treating the disability, or for medical expenses, education, housing and health care, or burial expenses. Caution should be taken spending as there can be hidden consequences.
Beneficiaries are limited to one ABLE Account with a maximum contribution of $14,000 per year. The existence of the account will not compromise the individual’s ability to qualify for such benefits as SSI or Medicaid unless the account balance exceeds $100,000. If the beneficiary is receiving SSI benefits, when the assets in the account total $100,000, monthly SSI benefits will be placed in suspension. If the assets in the ABLE account drop back below $100,000, the SSI benefit suspension ceases and any SSI benefit resumes.
If the beneficiary dies with assets in an ABLE account, those assets are first distributed to any state Medicaid plan that provided medical assistance to the beneficiary. For that reason, families looking to establish a fund for individuals may prefer to set up their own special needs trusts which allows them to protect the trust from state recovery and choose secondary beneficiaries other than the state.
The act takes effect at the beginning of 2015, and many states are forecasting that plans will be available starting in July 2015. States must first set up the administrative support to control and provide investment options for the “529A” accounts. Once in place, ABLE accounts will become another tool to protect valuable benefits while enhancing quality of life. Because of the limitations, many families of people with disabilities should still consider setting up traditional special needs trusts to provide enhanced care for their relatives with special needs. Before making a decision, it is important to talk to an attorney who can advise you on the best options for your particular needs.