For the first time, eligible individuals and families will be allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid and other public benefits. The legislation explains further that an ABLE account will, with private savings, “secure 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.”
For parents of disabled children in NY State, Governor Cuomo signed the identical bills by both the senate and assembly on 12/22/15 to go into effect immediately. Parents should contact their tax professional and/or the IRS for further details before they open the account.
The ABLE Act amends Section 529 of the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities. The bill aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing and transportation. The bill supplements, but does not supplant, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment and other sources.
The total annual contributions by all participating individuals, including family and friends, is $14,000. The amount will be adjusted annually for inflation. Under current tax law, $14,000 is the maximum amount that individuals can make as a gift to someone else and not pay taxes (gift tax exclusion). The total limit over time that could be made to an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts. Many states have set this limit at more than $300,000 per plan. However, for individuals with disabilities who are recipients of SSI and Medicaid, the ABLE Act sets some further limitations. The first $100,000 in ABLE accounts would be exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary would be suspended from eligibility for SSI benefits and no longer receive that monthly income. However, the beneficiary would continue to be eligible for Medicaid. States would be able to recoup some expenses through Medicaid upon the death of the beneficiary.
An ABLE account may fund a variety of essential expenses for individuals including medical and dental care, education, community based supports, employment training, assistive technology, housing and transportation. The ABLE Act provides individuals with disabilities the same types of flexible savings tools that all other Americans have through college savings accounts, health savings accounts and individual retirement accounts. The legislation also contains a Medicaid pay-back provision when the beneficiary passes away. It eliminates barriers to work and saving by preventing dollars saved through ABLE accounts from counting against an individual’s eligibility for any federal benefits program.
“Living with a disability should not mean a life of poverty. The poverty rate for New Yorkers with disabilities is just over 28 percent, twice that of New Yorkers without disabilities. We must end this cycle, and the NY ABLE Act is a step to doing that,” said Senator David Carlucci. “Our friends, neighbors, and children with disabilities deserve an equal chance at a better, brighter and financially secure future. I thank Governor Cuomo and applaud the support of advocates from across the state that made their voices heard in Albany.”
For more information, please go to www.irs.gov