A year ago, the ABLE act was included in the Tax Extenders Package that was signed into law by president Obama. The ABLE Act is an amendment to section 529 of the Internal Revenue Code, which as you may know, provides for transfers into education funds whereby the income generated by the funds grows tax free. The ABLE Act provides a way for people who were diagnosed with a significant disability before age 26 to transfer up to $14,000 per year into a single account which can be used for their sole benefit, without losing their eligibility for means-tested benefits such as SSI and Medicaid and DDD services. Each State can create its own program and adopt its own maximum for the account value. Until your state adopts its own program, you can open an ABL account under the law of another state. The IRS has issued Notice 2015-18 in IRS Bulletin 2015-12 concerning the income taxation issues.
The Social Security Administration has now implemented new procedures and standards regarding these accounts. The Social Security POMS are a supplement to the regulations that are contained in 20 CFR 1382, which are the SSI regulations. The new section is
SI 01130.740. Up to $100,000 can be held in the ABLE account without it being counted as a resource — very important, since SSI recipients have a $2,000 resource limit. The expenditures are limited to qualified disability-related expenditures. Distributions for other purposes may be counted as income, which could create additional problems for an SSI recipient.
New Jersey will still provide Medicaid benefits if the value of the ABLE account exceeds SSI’s $100,000 limit, assuming the recipient is still otherwise eligible.
ABLE accounts are different than Special Needs Trusts, and need to be administered in accordance with program requirements. Preserving eligibility for the other programs is of paramount importance. While an ABLE Act account may work for one person, a Special Needs Trust may be more appropriate for someone else.
Call us for advice and assistance with disability planning in connection with special needs … 732-382-6070