You May Be ABLE to Take Advantage of This Investment Account

May 9, 2017

Earlier in the year the Achieving Better Life Experience Act (ABLE) was passed into law allowing individuals with disabilities to fund a tax-advantaged savings account that could be used to pay for certain qualified disability expenses.

An ABLE account works similarly to a 529 College Savings Plan, where the account is funded with post-tax dollars and the earnings within the account grow income tax free; and, if used on ‘Qualified Disability Expenses’, come out of the account tax free.  Legislation regarding ABLE Accounts is relatively new and below are the key take aways regarding this new type of account:

 1.   The maximum amount that can contributed to an ABLE account in any given tax year is $14,000 and must be made with post-tax dollars. The contributions into an ABLE account are non-tax deductible.

2.  If funds within an ABLE account are not used on ‘Qualified Disability Expenses’, there is a 10% penalty assessed on the earnings portion of the distribution and you must also include the earnings as part of your Ordinary Income for the year.

3.  ABLE accounts can only be established for a person who is under the age of 26, although once established, the account beneficiary can continue to access/use the funds after age 26.

4.  Most importantly, ABLE accounts are intended to not affect the amount of Social Security and Medicaid benefits that a person may receive due to a disability. However, if the value of an ABLE account is greater than $100,000 that will affect the amount that one will receive from Social Security and Medicaid.  In addition, if the value of an ABLE account exceeds $350,000, contributions are no longer allowed to be made into the account, unless the value drops below $350,000.

5.  There is a Medicaid Pay Back Provision for all ABLE accounts which states that if a person were to ever receive Medicaid benefits over their lifetime, and if they were to suddenly pass away while they had an ABLE account, Medicaid would have the right to recapture any value of the ABLE account equal to the amount of payments made throughout that person’s lifetime.

ABLE accounts provide new and unique tax benefits for special needs individuals. We recommend working closing with your attorney and the BDF Wealth Management Team to see how ABLE accounts may fit into your families overall special needs plan.

No representation is being made that any strategy shown will or is likely to achieve results similar to those shown in this presentation. BDF does not provide legal, tax, insurance, social security or accounting advice. Clients of BDF should obtain their own independent tax, insurance and legal advice based on their particular circumstances. The information herein is provided solely to educate on a variety of topics, including wealth planning, tax considerations, insurance, estate, gift and philanthropic planning.