Congress passed the Achieving a Better Life Experience (ABLE) act of 2014 on Tuesday (12/16/15) when it voted on the tax extender bill. This bill creates a new tax free account that can be used to help with disability expenses of an individual.
The new ABLE accounts will be set up by a state or a state agency along the lines of the current Qualified Tuition Program (QTP) or Section 529 plans for education. (In Kansas, these are Learning Qwest plans.) An ABLE account can be set up for any individual who by the age of 26 is blind or disabled. They can set up the account for themselves or one can be set up for them. However, only one account is allowed for any disabled person but anyone can contribute to the account up to the annual gift tax limit (for 2015 that amount is $14,000) or the state set limit. Contributions are not deductible in the year of the contribution but will grow tax free. Distributions from the plan for qualified expenses will be tax free.
Qualified expense can include education, housing, medical, transportation, and legal expenses. Surprisingly, funeral and burial expenses are qualified expenses for ABLE.
These plans will generally not influence the disabled individual’s Medicaid or SSI. Account balances over $100,000 or distributions for housing may be considered for SSI but not Medicaid.
Some sort of certification of disability will have to be submitted when the account is created. This will have to document the nature of the disability and the age of the disability onset. The bill gives the IRS and Social Security six months to create the disability criteria for the disability. Once the rules are in place, the states will have to create their program. While it’s possible, it’s likely that programs won’t be in place until last 2015.
That’s the bare bones of the ABLE accounts. Once the IRS gets the regulations written and the States start creating their plans, there will be more questions and answers.