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Disabled benefit from new ABLE accounts

1-10-2105 - The ABLE Act, passed by the 2014 Congress, allows a special needs individual to set up a tax-free savings accounts that may exceed $2,000.00 without jeopardizing the individual's eligibility for means-tested government benefits such as SSI and Medicaid. ABLE ("Achieving a Better Life Experience") permits those with disabilities to work and save for the future. Until now, many individuals were effectively forced to impoverish themselves in order to remain eligible for vital government benefits.

Modeled after 529 college plans, ABLE accounts should become available as soon as the states work out the details to comply with federal guidelines. Opening an account should be a fairly inexpensive and straightforward process.

The funds in an ABLE account are not taxable. Any number of individuals may contribute to the account, although the beneficiary may have only one ABLE account. Contributions are not tax-deductible.

ABLE accounts have their limitations, however. These notable restrictions apply:

  • Any amount in the account in excess of $100,000 may result in a reduction of government benefits.
  • The total amount that may be deposited into the account by all contributors may not exceed $14,000 per year.
  • To be eligible, the beneficiary must have developed his/her disability by age 26.
  • Any funds left in the account when the beneficiary dies must be used to repay Medicaid.
Unlike an ABLE account, a Special Needs Trust does not impose these restrictions. Thus, while ABLE is certainly a useful tool, it is neither a perfect solution nor a substitute for a Special Needs Trust, which will continue to be a valuable planning tool for special needs individuals and their families.

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