ABLE Act Will Help Those Affected by Mental Illness Save Money
By Andrew Sperling, NAMI Director of Federal Legislative Advocacy
The Achieving a Better Life Experience, or ABLE Act, was signed by President Barack Obama on Dec. 19, 2014. This law allows some families and individuals to establish tax-free savings accounts for the qualified expenses of people with blindness, physical or mental disabilities without the fear of losing government benefits.
Under the ABLE Act, people living with disabilities will be able to deposit up to $14,000 annually [see update below] in a qualified savings account and save up to $100,000 without losing eligibility for Supplemental Security Income (SSI). Setting up an account will not affect eligibility for Medicaid. The law also allows the account to earn tax-free interest. Funds in ABLE accounts can be used to pay for health care, education, and other expenses, including housing.
However, in the final stages of the legislative process an important restriction was included on ABLE accounts: only people whose onset of disability occurred before age 26 will be eligible. This means that many adults living with serious mental illness will not be eligible for these accounts. It is important to note that the age of 26 is not related to the onset of illness, but rather the point at which the Social Security Administration (SSA) deemed an individual to be so disabled that they became eligible for benefits under SSI. For many adults with serious mental illness this is long after their initial diagnosis.
Why was this restriction put in the ABLE Act? The cost. Earlier versions of the ABLE Act did not include this restriction on eligibility. However, the Congressional Budget Office (CBO) projected that the cost would exceed more than $20 billion over the coming decade. With this age 26 eligibility requirement in place, the projected 10 year costs were lowered to $2 billion. This forced the bill’s sponsors to accept this restriction in order to pass the bill.
Excerpt from https://www.mynyable.org/home/taxreform.html
Federal tax reform legislation includes new provisions for ABLE programs
On December 22, 2017, federal tax reform legislation, H.R. 1 of the 115th Congress (the Tax Cuts and Jobs Act of 2017), was signed into law. This legislation includes the following new provisions for ABLE programs:
ABLE account owners who earn income may contribute more to their accounts than the program's annual $15,000 limit. The additional annual contribution is equal to the federal poverty line for a one-person household ($12,060 for the 2018 tax year) or the account owner's income, whichever is less.
ABLE account owners who contribute to their accounts may receive a federal tax credit, called a Saver's Credit, for up to $2,000 to help save for retirement. Eligibility is based primarily on Adjusted Gross Income and other eligibility criteria detailed here.
529 College Savings Program account owners are eligible to roll over 529 Plan assets to an ABLE account owned by a beneficiary or a member of that beneficiary’s family* with no federal tax impact.** These rollovers are subject to the annual contribution limit for ABLE accounts.
While the NY ABLE program is implementing these changes, you may contact us at 1.855.5NY.ABLE (1.855.569.2253) Monday through Friday from 8 a.m.– 8 p.m. for additional information and assistance.
Should You Open An ABLE Account
For A Child With A Disability?
FORBES Article by Kathryn Flynn
Feb 6, 2018
Having even a modest amount in savings or assets can jeopardize eligibility to receive public benefits like Medicaid and Social Security Income (SSI). That is, unless the funds are held in a 529 ABLE account.
Individuals who are living with a disability have little incentive to plan for their future. Having even a modest amount in savings or assets can jeopardize eligibility to receive public benefits like Medicaid and Social Security Income (SSI). That is, unless the funds are held in a 529 ABLE account.
The Achieving a Better Life Experience (ACT) was signed into law in 2014 and introduced a way for families with special needs to save in a tax-advantaged account as a supplement to private insurance and government benefits. Over 30 states have administered ABLE programs, and over 13,000 accounts have been opened, according to research firm Strategic Insight. Yet some financial advisors believe more people should be taking advantage of them.
“The perception is not great,” says Kathleen Oberneder, ChSNC, a financial advisor at Crescendo Wealth Management in Milwaukee, specializing in special needs planning. “There is a lack of information, and a lack of clear positive information – in an industry that is confusing to begin with,” she says.
What are 529 ABLE Accounts?
Similar to traditional 529 plans, ABLE accounts offer tax-free investment growth and tax-free withdrawals when the funds are used to pay for qualified expenses. However, in addition to education costs, qualified disability expenses also include job training and support, healthcare and financial management. “It’s not education or nothing,” says Oberneder, whose daughter has Down Syndrome. For example, ABLE savings can be used to pay for summer camps for children with special needs or equestrian therapy for individuals with autism.
ABLE plans are available to individuals who were diagnosed with a disability before age 26, with a condition expected to last at least 12 consecutive months, and who are receiving benefits under SSI or SSDI (or who can obtain a disability certificate from a doctor). Contributions are limited to $15,000 in 2018, but the recent change in tax code now allows individuals who are working to deposit an additional amount up to the current poverty level.
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But perhaps the most important benefit is that individuals can save a substantial amount in an ABLE plan without hurting eligibility for government assistance. Before the ABLE Act, individuals who earned more than $700 a month or had more than $2,000 in assets risked having to forfeit eligibility for Medicaid and SSI. Today, ABLE programs allow individuals to save as much as $300,000 in a tax-advantaged account (limits vary by state). However, once the account reaches $100,000 the individual will no longer be eligible to receive SSI benefits, but they will still qualify for Medicaid.
529 plan rollovers
The new tax law also included a change to allow tax-free rollovers from traditional 529 plans to ABLE plans. “This makes 529 College Savings Plans more attractive for families looking to save early for their child’s education by allowing them to roll them into 529-ABLE accounts if their child qualifies as disabled at a later date,” says Michelle Herd, CFP, Senior Client Advisor at TFC Financial Management in Boston.
“The reality is that many disabilities aren’t diagnosed immediately at birth and families that had saved into a 529 College Savings Plan and later discovered their child had special needs had to make the difficult choice of either withdrawing the funds and paying taxes and a penalty or rolling the funds over to another beneficiary all-together to be used for their education,” she says.
Even if an individual with special needs does plan to attend college, they may still want to consider rolling their 529 funds into an ABLE plan. According to nonprofit think tank New America, assets held in a traditional 529 plan will not disqualify a child from receiving Medicaid, however 529 savings will count toward the $2,000 SSI limit.
Why aren’t more people using ABLE accounts?
Despite their benefits, the majority of families and individuals with special needs are not taking advantage of 529 ABLE plans. In fact, many parents (and even some financial advisors) aren’t aware that ABLE accounts exist, and those who do are often confused about how they work.
Unlike 529 plans for education savings, ABLE accounts are direct-sold only. “ABLE Accounts are very new and present a great planning opportunity for families with members who have special needs, but one of the challenges we have run into is that the plans available at this point are available for consumers to purchase directly from the sponsor,” says Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management, a registered investment advisor in the DC Metro area.
“We can tell clients about them, but they have to open the plans and manage them on their own,” he adds.
Financial advisors may also have a difficult time advising clients on ABLE plans, because in most cases the family will also need to set up a special needs trust for their child. “Given that many of the other account limitations remained unchanged for 529-ABLE accounts, they remain a supplemental strategy for saving for care for a special needs beneficiary but will not likely fully replace the use of special needs trusts for many families,” says Herd.
Without guidance from a financial advisor, individuals and their caregivers may become overwhelmed trying to select an ABLE plan. The plans are sponsored by states, but there are no residency requirements to enroll. Some states offer tax deductions for contributions but amounts and rules vary. Just because your state offers a tax benefit for college savings in a 529 plan doesn’t necessarily mean they will offer the same benefit for ABLE savings.
Take Wisconsin, for example. According to Oberneder, many residents assume they can’t enroll in an ABLE program because their state doesn’t sponsor one. Yet this is far from the truth – not only can Wisconsin residents enroll in another state’s plan, funds withdrawn to pay for qualified expenses will be state-tax free, and account owners can claim a state tax deduction for contributions to any state’s ABLE program.
Overall, there has been a negative perception surrounding ABLE programs. Contributions and other limitations, such as the Medicaid payback requirement, have caused families and financial professionals to shy away from opening accounts. “There is a provision that allows states to reclaim residual funds in the account at the death of the beneficiary to repay Medicaid for expenses incurred on their behalf,” explains Herd.
Oberneder admits that ABLE programs aren’t perfect, but she tries to focus on the positive. “No, it’s not the best, but it’s something. Let’s look at what it is offering, how it’s already changed perceptions among employers and the investment community,” she says.
Parents who have a child with a disability are faced with a tremendous responsibility to understand their medical, educational and financial needs. “That is intimidating and overwhelming enough for parents. The last thing a parent wants to do is impact the child’s public benefits,” Oberneder says.
NAMI Orange presents information only and does not recommend making a financial move without having thoroughly discussed the pros and cons with a professional.