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ABLE Act: Help for Special-Needs Planning

Insights & Ideas Team •  November 16, 2015 | Your Finances, Home and Family

Caring for a loved one with special needs is a daily challenge for nearly 57 million Americans. Finances can be an additional burden—besides the soft costs, such as time spent away from work, there are countless tangible expenses ranging from assistive equipment to work force training.

For parents who have children with special needs, financial planning is critical. That planning includes obtaining available government benefits, such as Supplemental Security Income (SSI) Benefits, and ensuring that you keep them. While there have long been tools available for such planning, the federal government has recently added a new option for special-needs planning.

The Achieving a Better Life Experience (ABLE) Act was signed into law in December 2014 after strong bipartisan support in Congress. The ABLE Act provides an opportunity for families to transfer assets to a family member with disabilities without jeopardizing the availability of government benefits.

ABLE accounts are somewhat similar to 529 plans that many people are familiar with when it comes to saving for college; they get similar tax advantages. But beyond education expenses, money in an ABLE account can be used for additional needs related to an individual’s disability, such as housing, transportation and personal support services. While a comprehensive list of qualified ABLE Act expenses is still a work in progress, several have already been identified in guidelines developed by the Treasury Department.

The law allows an eligible person with disabilities to have only one ABLE account. Anyone who wants to financially assist that person can contribute cash to his or her ABLE account, but the total amount that can be contributed per year to an ABLE account is limited to the gift tax annual exclusion amount, currently $14,000.

The maximum amount that an eligible ABLE account can accumulate is tied to the maximum allowed for that state’s 529 plan, as much as $300,000 to $400,000. However, the availability of SSI will be affected if the ABLE account exceeds $100,000.

Check here to see if your state has passed the act. If it hasn’t, you may have the option of opening an ABLE account in another state.

Qualifying for an ABLE Account

Anyone who has a severe disability before the age of 26 is eligible for an ABLE account. Older individuals may still qualify; however, they must show they had their disability before their 26th birthday. According to the National Down Syndrome Society, nearly six million individuals and families are expected to take advantage of the ABLE Act in 2015, a number that’s expected to grow as program awareness increases.

ABLE Account or Special-Needs Trust?

Another popular financial tool that allows a person with special needs to have money available without impacting SSI or other government programs is a Special-Needs Trust (SNT). While an ABLE account and an SNT both provide a means to cover costs of special-needs care without losing benefits, there are some significant differences between the two:

  • An ABLE account can benefit only individuals with special needs who can prove they were disabled when they were under the age of 26, whereas an SNT can benefit those of any age.
  • ABLE account contributions are capped at $14,000 annually, while SNT contributions are not.
  • An ABLE account can be managed by the individual with special needs, while an SNT has a trustee.
  • Setting up an SNT is often more involved than establishing an ABLE account.
  • An ABLE account in excess of $100,000 will affect SSI payments, while a properly drafted SNT will not.

Before you choose either, talk to your financial professional and other advisors who can help you choose what’s best for your individual situation.

Part of a Comprehensive Financial Plan

When planning the finances for someone with special needs, it’s important not to lose sight of your own financial plan. A financial professional can help you review your options, determine what’s right for your situation and help implement a plan that works for you.

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