The “Achieving a Better Life Experience” (ABLE) Act was signed into law in December of 2014. This federal law allows certain persons with disabilities to own a tax-advantaged savings account to be used for disability related expenses. The existence of the account will not disqualify the disabled individual from needs-based programs such as Medicaid and SSI (Social Security Income).
In order to qualify for this kind of an account, the individual must have become disabled (as that term is defined under the Social Security rules) before the age of 26. There are limits on the amount that can be contributed to the account annually ($14,000), and a maximum total value allowed ($375,000). If the individual complies with the limits, then there will be no income tax on the growth of the account. As long as withdrawals from the account are made for “qualified disability expenses,” there will also be no tax on the funds when they are withdrawn from the account. Qualified disability expenses could include education, transportation and medical expenses.
One potential disadvantage to the ABLE account is that upon the death of the disabled beneficiary, the State of New Hampshire will be entitled to the remaining balance in the account, up to the amount of Medicaid services provided to the beneficiary. This is in contrast to Special Needs Trusts created by a parent or grandparent, where the remainder can be directed to another beneficiary after the death of the disabled individual.
Before ABLE accounts may be created, the State of New Hampshire must pass its own legislation to create a Qualified ABLE program. Senate Bill 265 has been passed by the New Hampshire Senate and is going before the New Hampshire House this month.
This article is an introduction to the ABLE account only, and every situation is different. Speak to your financial advisor or attorney about your particular circumstances in order to determine whether an ABLE account is appropriate for you or your family member.