Critter Corner: An ABLE Account for a Loved One with a Disability

Dear Angel,

I have an intellectually disabled daughter, and I’ve seen a lot of information this month from the ABLE National Resource Center through their #ABLEtoSave campaign. I understand that it’s state run, and that Virginia was among the first states to participate. Can you tell me more about the ABLE Act in Virginia and how we can get started?

Thanks,

Abe Bell
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Dear Abe,

ABLE accounts are savings accounts that enable a person with a disability that began before age 26 to put aside more than the $2,000 allowed to continue receiving SSI benefits. The accounts let a person who is working, at some capacity, to put aside funds.

ABLE accounts can be another savings option and a good complement, are sometimes an alternative, to a first-party special needs trust, but it should never be used as a substitute for a third-party special needs trust because it requires pay back to the state for Medicaid expenses.

Here are seven things you should know about ABLE accounts.

1. What it covers. Qualified expenses include education, housing, transportation, assistive technology, employment training and support, financial management and health care expenses.
2. Eligibility. A beneficiary is eligible for an ABLE account if he or she is already receiving benefits under Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). If the potential beneficiary is not already receiving those benefits, his or her disability must be certified with a written diagnosis by a licensed physician. Under all circumstances, the onset of the disability must have begun prior to age 26.
3. Bypassing asset limitations. An ABLE account is disregarded when determining certain federal benefit eligibility with the following two exceptions for individuals receiving Supplemental Security Income (SSI): For the purposes of determining eligibility for SSI, money in an ABLE account in excess of $100,000 is considered an asset to the individual with a disability and may cause SSI benefits to be reduced or suspended. An account balance up to and including $100,000 is disregarded.

There is no impact on Medicaid benefits, regardless of how much money is in the ABLE account.

4. Contribution limits. The cumulative ABLE account value limit is currently $500,000. Contributions to an ABLE account may technically be made by any person (the account beneficiary, family and friends);however, family and friends should never make contributions to an able account because of the Medicaid payback requirement. Instead, if family and friends want to contribute money to benefit a special-needs beneficiary, a family member should establish a third-party special needs trust, which does not require Medicaid payback.

5. Taxes and fees. Earnings in an ABLE account grow tax-deferred, and withdrawals are tax-free when used for qualified disability-related expenses. In addition, states may offer state tax incentives. For example, in Virginia, earnings grow free from federal and state taxes. Virginia also offers an annual state income tax deduction of up to $2,000 per contributor for contributions to an ABLE account.

6.Timeline. Money in an ABLE account can be used over the lifetime of the beneficiary so long as funds are used for qualified expenses.
Today, you can open an ABLE account using any state’s plan following the 2015 removal of a residency requirement for beneficiaries.

7. If The beneficiary of an ABLE account receives Medicaid benefits during the time the ABLE account was open, then Medicaid is entitled to be paid back for all Medicaid funds expended for the benefit of the beneficiary prior to the death of the beneficiary. Before Medicaid payback, the account balance can be used by the Account Owner’s estate to repay any outstanding Qualified Disability Expenses, including funeral and burial costs.

To learn more about ABLE Accounts in Virginia, click here.

Hope this is helpful,

Angel