The Able Act –
An Important Tool For Families
With A Special Needs Member
Rob Wrubel CFP®, AIF®
The ABLE Act (Achieving a Better Life Experience Act) of 2014 passed both houses of Congress in December and was signed in to law by President Obama on December 19, 2014. This is the most important piece of legislation serving families with a special needs member in more than a decade. The ABLE Act allows individuals to set up a tax-free investment account to benefit a person with qualified disabilities.
Families with a special needs member have not had a tax-efficient way to save for current and future expenses of their family member with a disability. The choices were limited – put money into a taxable investment account or go through the complicated process of funding a special needs trust. ABLE accounts will let families set up a tax free investment account without any special legal or tax consulting needed. These accounts should be available sometime in the next six months as states and investment companies adapt to the new law.
There are seven key concepts to know:
- ABLE Act accounts are tax-free savings and investment accounts. Income and dividends are not taxed while money stays in the account and qualified distributions are not taxed as the money comes out. These are like Roth IRA and 529 plan accounts in their tax structure.
- ABLE Act accounts can be opened on behalf of a person with a qualified disability who has become disabled before the age of 26. The disability must meet the standards of SSI and SSDI. These standards and required documentation will be further explained as the Treasury Department drafts the rules covering the ABLE Act.
- An individual can have one ABLE account for his or her benefit.
- Accounts can be used to pay for “qualified disability expenses.” Right now, this is a broad definition that can include education, housing, transportation, assistive technology, health-care, legal, financial and other expenses for the person with special needs. The rules governing payments will be outlined next year in more detail.
- There are limits to contribution amounts. Able Act accounts cannot receive more than $14,000 in any calendar year without paying a tax on the contributions. The contribution amount is indexed for inflation.
- Accounts may have unlimited funds in them but any funds over $100,000 will suspend SSI benefits until the account is under $100,000. Amounts over $100,000 will not suspend or affect Medicaid eligibility.
- Medicaid is the primary contingent beneficiary of an ABLE account for repayment of expenses.
Families cannot fund ABLE Act accounts today. The Treasury Department will set rules in 2015 after a comment period. States can then set their guidelines governing these types of accounts to be funded sometime before the end of next year.
The Able Act accounts do not replace the key planning steps of the Blueprints process. Families need to follow the steps of dreaming about the future, organizing their financial life, getting a special needs trust in place, eliminating debt, creating emergencies funds, saving for retirement and having the right types of insurance in place. Able Act accounts greatly simplify the process of saving for family members with special needs.
Until now, our special needs family member could not have any tax advantaged accounts or even have more than $2,000 in his or her name. These accounts now give families an important planning resource.
Call me to find out more about Able Act accounts and the Blueprints process for financial planning for families like ours.
Rob Wrubel CFP®, AIF®, is a Senior Vice President – Investments with Cascade Investment Group, member FINRA & SIPC. Rob is also a father of a daughter with Down syndrome. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.719-632-0818
