ABLE to Save

by Laura Chiesman

“In Florida, more than 35 percent of adults with disabilities are unemployed and nearly 25 percent are living in poverty,” said Senate President Andy Gardiner (R-Orlando). “Many of these individuals have unique abilities to offer businesses across our state, yet important benefits like Supplemental Security Insurance and Medicaid can be lost once they establish a minimum level of savings and income.” Senator Gardiner’s comments highlight a situation that is often faced by individuals and their families – the asset limit of $2,000 is a barrier for many who could otherwise experience the security, pride and independence that saving and providing for some of their own needs can bring.

As of December 2014 the ABLE Act was signed into law – The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act. This enables eligible individuals to save money in a tax-exempt account and use these funds for qualified expenses. The big advantage here is that savings up to certain limits, and the use of these funds, does not affect eligibility for federal public benefits including Social Security and Medicaid. This is a huge development and one that was fought for by many over a ten-year period. A bipartisan set of Congressional supporters, along with organizations such as the National Down Syndrome Society, Autism Society, and National Federation for the Blind as well as many other organizations, championed this great effort.

From this Act 529 Plans have become a familiar college savings and tuition vehicle for many and they were first made available in 1996 after Congress created them. They are named after section 529 of the Internal Revenue Code known as Qualified Tuition Program (QTP) legally. 529 Savings Plans allow for tax-advantaged savings and growth in specially designed investment accounts, while 529 Prepaid Tuition Plans provide opportunities to lock in tuition and certain other expenses at current rates. For a quick review see this article.

The ABLE Act amends Section 529 of the Internal Revenue Service Code of 1986 and this amendment has resulted in a new savings vehicle for individuals with disabilities. This new savings plan is known as a 529A Plan and shares many structural characteristics with the original 529 Savings Plan. There are, however, some obvious differences given savings goals and qualified needs. Both savings plans allow for tax exempt growth on plan contributions and tax free distributions as long as the funds are used for qualified expenses. Funds used for other than qualified expenses will be subject to income tax and a 10 percent penalty, as we have seen with 529 College Savings Plans. More great news is that the definition of qualified expenses under the ABLE Act is very broad and includes education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses to enhance the beneficiary’s quality of life. Account owners will need to be sure to keep a record of their expenditures and save their receipts for proper documentation.

In the year and a half since the vote to approve this Act there have already been changes, and additional updates have been proposed. Initially ABLE plan participation was limited to an account owner’s state of residency, however in a recent major development, this is no longer a restriction. Eligible US residents may open ABLE accounts in any state regardless of residency. This will help many to begin participating even if their states are not yet ready to roll out their plans.

As of June 13, 2016, 47 states have enacted ABLE legislation. To see where your state stands on this very important issue, read more hereFlorida’s plan, The Able United Program, is targeted to go live on July 1, 2016.

This is definitely still a work in progress. Check out the National Down Syndrome Society site for information and several great resources including answers to frequently asked questions.

There are many rules and requirements that must be considered in light of family and individual situations. Annual and lifetime contribution limits as well as plan balance limits, all of which have effects on Federal Program eligibility and families that have unique situations. It is a good idea to work with your advisor when doing this sort of planning and investing and the WealthCoaches at our wealth services firm in Satellite Beach, FL – the Melbourne/Brevard area would be happy to discuss this opportunity with you. Contact us today at 321-773-7773 and we’ll set up your complimentary consultation today!