Congress Passes ABLE Act

Congress has passed the ABLE Act of 2014 (Achieving a Better Life Experience.)  Beginning in 2015, states may choose to develop savings plans akin to the popular 529 college savings plans.  The ABLE account may provide an efficient way for family members or friends to provide small gifts to benefit a loved one with a disability.  The ABLE account should not be considered a replacement for supplemental needs trust planning, but as an additional tool that may be appropriate under certain circumstances.

Importantly, the funds in the ABLE savings plan will not be countable when the beneficiary of the plan applies for needs based government benefits such as Medicaid and Supplemental Security Income (SSI).  However, if funds accumulate in the account in excess of $100,000, then the beneficiary’s eligibility for SSI will be impacted.

While the new savings plan look similar to 529 college savings plans, there are significant differences.   To be eligible, the beneficiary must have a disability that began prior to age 26. Funds in the account may be used for approved health care, education, housing, personal support and other care expenses.  Only one ABLE account can be set up for each eligible person.  Total annual contributions cannot exceed the federal annual gift tax exclusion ($14,000 for 2015), while each state can set limitations on total contributions from all donors.  (Illinois currently permits up to $350,000 to be contributed to the 529 college savings plans.)   Unlike 529 plans, contributions to the ABLE account are not tax-deductible; however, earnings in the account will not be subject to income tax.