The Able Act was signed by President Obama on December 19, 2014. This piece of legislation provides an opportunity for an individual with special needs to have assets over $2,000 in an account other than a trust account and not disqualify him or her for Medicaid Based benefits and Supplemental Security Income (SSI).
The Able Act is an enormous boost to raising the awareness of families that they have to save and plan for their child with a disability. While the benefits to families provide a lot to be excited about and thankful for, families should be cautioned about the plan's shortcomings and be aware that it is not the solution for everyone.
There are many details about the law to be considered before you decide to use an Able account. The following are 3 situations in which the plan may apply.
- Individuals with disabilities may save money for the long-term. Currently, an individual with disabilities is penalized if they try to save money for themselves. The Able act provides them the opportunity to build investments for the long term. Building off of similar legislation for 529 college savings plans, the Able accounts are investment accounts and will have expenses associated with the plan's administration. This account should not be used as a substitute for a checking or savings account.
- Eliminating the need for a “spend down”. An Able account will be a great tool to use when an individual with disabilities is close to turning 18 and has greater than $2,000 in his or her name. This is because at and over age 18, an individual cannot have greater than $2,000 in his or her name to qualify for SSI. Currently there are two options: assets have to be “spent down” to get them below $2,000 or assets are transferred to a “Payback” Special Needs Trust. Abruptly spending the money down can be wasteful. Unless the assets are somewhat significant, the expense of setting up the trust can offset the benefit. Under the Able Act this money could be deposited in an Able Account. However, if the assets are significant, a trust is likely the best option.
- Parental awareness of savings limits and government reimbursement. The Able account may be used for parents to save for their child’s long term needs but there are trade-offs. There are limits on what can be saved annually and there are limits on the total that can be saved. In addition, there is a clause requiring reimbursement of Medicaid benefits in the event the child passes away.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended as tax or legal advice. Investing involves risk including loss of principal.
Prior to investing in an ABLE account investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's ABLE program. Please consult with your tax advisor before investing.