An Emerging Tool for Planning for Individuals with Disabilities
Families with individuals who have significant disabilities (onset before the age of 26) can create tax-advantaged accounts that can be used to help maintain health, independence, and quality of life for the person with the disability. Earnings on money in an ABLE account is tax free.
Since the ABLE account was introduced in 2014, the annual limitation on all contributions to an ABLE account was the annual gift exclusion which is $15,000 in 2018. However, if an individual with an ABLE account has earned income, under the 2017 Tax Reform Act, he can contribute up to an additional $12,060 (in 2018) of earned income. An exception to this is that if the person is also contributing to an employer retirement plan such as a 401(k) or 403(b). In this case she is not allowed to contribute anything above the normal limit of $15,000 to the ABLE account. Any contributions made by the individual is eligible for the "Saver's Credit" which is a non-refundable tax credit that can be up to 50% of any earned income related contributions.
Coordination with Benefits
An ABLE account does not count against the $2,000 total asset limit for the disabled person to be eligible for means-tested government benefits. However, ABLE accounts DO count towards eligibility of the disabled person to receive Supplement Security Income (SSI). If the account value goes over $100,000 then the SSI income would be suspended. Track the value of the ABLE account very closely to keep it under the $100,000 threshold. Note: An eligible person can only have one ABLE account.
The advantages of ABLE accounts are that they are easy to set-up, do not require legal documents to be created, and can be attached to a debit card so money can be easily spent. The money in an ABLE account can be invested, is not subject to taxation, and the investment gains can compound over time. ABLE accounts can also be combined with Special Needs Trusts and Supplemental Needs Trusts for greater planning flexibility for disabled individuals.
Eligible individuals (or their family members on their behalf) can set up an ABLE account with any state that offers them, regardless of their residency. The ABLE National Resource Center website (http://www.ablenrc.org) has a list of all of the states that have ABLE account programs. You can find the Massachusetts plan at https://www.fidelity.com/able/attainable/overview and New Hampshire's https://www.stablenh.com/.