New Federal Legislation Creates Tax-Free
Savings Accounts for Disabled Individuals
by Germantown / Memphis Attorney
Section 529 of the Internal Revenue Code of 1986 has been amended to create tax-free savings accounts for individuals with disabilities. In December 2014, President Obama signed into law the Achieving Better Life Experience Act (the ABLE Act of 2014). The purpose of the ABLE Act is to secure private funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary's employment and other sources."
The ABLE Act allows for individuals to utilize a tax-free, state-based private savings account for the care of people with disabilities. What’s more, ABLE savings accounts will not affect an individual’s eligibility for SSI, Medicaid and other public benefits. That’s right, it eliminates the asset test for families whose children receive SSI. The first $100,000 in ABLE accounts would be exempted from the SSI $2,000 individual resource limit.
Eligibility for these special tax-free savings accounts will be limited to those individuals with both “significant disabilities” and the onset of whose disability was before they reached the age of 26 years. If you meet these criteria and are also receiving benefits already under SSI and/or SSDI, you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you would still be eligible to open an ABLE account if you meet SSI criteria regarding significant functional limitations.
Once established, an ABLE account could fund a variety of essential expenses for individuals, including medical and dental care, education, community based supports, employment training, assistive technology, housing, and transportation.
Right now, no one can open an ABLE account. Regulations must be established by the Treasury Department before the individual states can begin to set up procedures for managing ABLE accounts. Once the regulations are in place, anybody would be allowed to open and contribute to an ABLE account on behalf of an eligible beneficiary, but each beneficiary is restricted to one ABLE account. Contributions from the account beneficiary, family members and friends are restricted to the annual gift tax exemption and are not tax-deductible.
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