ABLE Accounts: tax-advantage savings program for people with disabilities

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ABLE Accounts: tax-advantage savings program for people with disabilities

Early last year we discussed the ABLE Accounts as a potential option for Alabama families.  By December, the state of Alabama instituted the program, per State Treasurer Young Boozer, with a contract with the state of Nebraska.  The Alabama plan will be known as Enable Savings Plan Alabama, and more information can be found at www.enableAL.com.

Here are the key facts about the ABLE act and Enable Savings Plan Alabama:

WHO? While the law provides specific guidance as to the definition of “disabled,” the ABLE act generally applies to individuals who became disabled prior to his or her 26th birthday. The disabled individual is the account owner and designated beneficiary. In general, the individual can only have one ABLE account at a time.

WHAT? A total of $14,000 (the current annual gift tax exclusion amount) can be contributed to the ABLE account annually. An ABLE account is somewhat similar to a Roth IRA, in that there is no tax deduction for contributing to the ABLE account, but beneficiaries will not have to pay tax on the earnings if they follow the rules for taking qualified distributions. Qualified expenses must relate to the beneficiary’s blindness or disability and help that person maintain or improve health, independence or quality of life. Although not exhaustive, examples include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.

WHEN? It’s now available to Alabamians who qualify.

HOW? Disabled individuals and family members can work with an advisor at a financial institution to open an account.  Or you can email EnableAlabama@fnni.com.

 

Additional key items to note:

1) Due to contribution limits, distribution restrictions, and a Medicaid payback requirement, the ABLE Act does not eliminate the need for a Special Needs Trust.

2) Many federal programs that provide financial, occupational, and other essential services to disabled individuals consider the individual’s income in determining eligibility. In general, an ABLE account is not counted in the income determination for these federal means-tested programs, such as Supplemental Security Income and Medicaid. However, if an ABLE account exceeds $100,000 then individuals will no longer be eligible for SSI or Medicaid in Alabama. If the individual only receives Medicaid benefits, then the account limit is $350,000 in Alabama.

3) Distributions for eligible expenses are not included in the beneficiary’s gross income for tax purposes. However, a pro-rata portion of the earnings is includible in gross income and subject to a 10% penalty if distributions are made for a non-qualified expense.

4) Recipients of SSI or Social Security Disability income are able to contribute up to $14,000 per year from these checks to their ABLE account, and thus avoid having to spend any excess in order to meet the $2,000 resource limit to remain eligible for these resources.

Until the issuance of final Section 529A regulations, taxpayers may refer to the proposed regulations found at the link below for additional information. Guidance under Section 529A Qualified ABLE Programs – last updated December 28, 2016, but still not the final regulations.

By | 2017-05-18T22:55:00+00:00 February 17th, 2017|Accounting & Auditing, Estate & Trust, Individual Tax, News & Events|0 Comments

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Bobby M. Bragg

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