Do you have a loved one who qualified for Social Security Income (SSI or SSD) prior to the age of 26? If so, an Achieving a Better Life Experience (ABLE) Account may be a great resource for your family. The ABLE Law allows people to create Accounts similar to 529 Plan accounts, for loved ones with special needs. These accounts receive tax and Social Security eligibility benefits that other accounts cannot provide.
According to the law, each individual can only have one account, and yearly contributions are limited to the annual gift tax exclusion amount. Funds in the account can be used for “Qualified disability expenses.” This term is more lenient than its Medicaid counterpart, but it is a very important definition to know. If the account is not used for qualified expenses, it will lose its tax benefits, be included in the beneficiary’s gross income, and receive a 10% penalty.
One major benefit of the account is its possible size. Up to $100,000 can be held in an ABLE account before it is counted as income for Social Security purposes. If the account grows beyond $100,000, the account will be counted as income for Social Security purposes, but your loved one may still qualify for state Medicaid benefits. The beneficiary can have access to and control of the account.
Some risks may be associated with the accounts, including the possibility state Medicaid may claim the accounts after the beneficiary’s death, even if third parties have contributed. Since the law was only established in 2014, these questions remain unclear. However, if you have a loved one with a disability, this may be a wonderful tool to add to your Special Needs planning.