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Finally, ABLE to save

From the perspective of someone like me who screens for financial posts, the Internet is full of anecdotes and data about how little how many Americans have saved for retirement. The writers, I expect, intend to challenge working people to save more. As a financial planner, I applaud that intent.

Except that, until a few years ago, I could not advise my clients with disabilities to save more for retirement IF they either needed or expected to need Medicaid or Medicaid Waiver funded services. This is because a person, who has too many financial assets will not qualify for Medicaid and retirement accounts such as IRAs, are countable resources unless you are already retired; and they are in payout status. In which case the payout becomes countable income.

All the people with disabilities that I have met want to work and support themselves to the fullest extent possible. They want to save money for their own future as well as manage and spend their own money for their daily life in the present. ABLE accounts provide the vehicle to do this.

ABLE are tax-advantaged accounts, which people with disabilities that onset before the age of 26 can open. The person must either meet the Social Security definition of “having a disability”, which we have discussed in a previous blog, or self-certify. The person with a disability owns and controls the funds in the ABLE account for her/his benefit. The person with a disability can contribute to the account, but so can non-owners, such as parents or siblings. This is different from a Special Needs Trust of which the person with a disability MUST be the beneficiary and CANNOT be the owner. In addition, a single Special Needs Trust must not co-mingle money originating with the beneficiary and money originating from parents or other parties. Separate trusts must be established for first- and so-called third-party money.

The annual contribution limit for ABLE tracks the value of the IRS’ annual gift tax exclusion, currently $15,000/year. However—and this is a recent improvement—people with disabilities who work may contribute an additional amount over and above the $15,000, provided that they are not contributing to their employer-sponsored plan. The additional contribution is limited to the larger of their total annual compensation or the Federal Poverty guideline value for a single person for the year preceding the contribution. Currently, the maximum additional amount would be $12,060. All contributions must be made in cash. ABLE accounts can be transferred or rolled over from one custodian to another in the manner of IRAs; but, unlike with IRAs, and individual can own only one ABLE account at any given time. ABLE accounts can also accept rollovers from 529 (college savings) accounts, but the rollover will count towards the annual contribution limit for that year.

A person can qualify for and continue to receive Supplemental Security Income as long as her/his ABLE account balance remains below $100,000. If it rises above that amount, SSI benefits are suspended, but they are reinstated when the account dips below $100,000 again. In Illinois, person can qualify for and remain on Medicaid as long as her/his ABLE balance stays below $400,000. Other states may have different Medicaid thresholds.

ABLE account funds can be invested in a range of portfolios, offered by different custodians. The funds grow tax-deferred,and distributions to pay for Qualified Disability Expenses are tax-free. Qualified Disability Expenses include: education, housing, transportation, employment support, assistive technology, health care, financial management and administration. Basically, these expenses are anything that relate to the disability and improves independence, health or quality of life. ABLE distributions for food and shelter do not reduce SSI benefits as would similar distributions from a Special Needs Trust. Amounts remaining in ABLE accounts at the owners death are subject to Medicaid payback, although the account can probably be managed to avoid having much money left.

For many people with disabilities who want to save and manage their own funds, these accounts live up to their full name: Achieving a Better Life Experience.

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