ABLE Accounts Information

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ABLE Accounts: The Basics

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The Achieving a Better Life Experience Act (ABLE Act) was passed by Congress in December of 2014, authorizing the states to establish programs with special financial accounts for individuals with disabilities. The ABLE law refers to these individuals as “designated beneficiaries,” and they are able to save, administer, and spend funds from ABLE accounts in their own names without being disqualified from their means-tested public benefits like Supplemental Security Income (SSI) and Medicaid (called MaineCare in Maine). The accounts provide independence, dignity, and financial security.

The beneficiary is able to save up to $100,000 in an ABLE account and not risk eligibility for SSI. If the ABLE balance exceeds $100,000, SSI eligibility will be placed in suspension but will not be forfeited. If the ABLE balance drops back below $100,000, benefits will resume with no need to re-apply for SSI.

Even more can be set aside and not affect eligibility for Medicaid. The limit varies according to which state the ABLE is located, and the current range is from $235,000 to over $500,000.

The first ABLE program was launched in Ohio in the summer of 2016, and most states have now developed their own ABLE programs which are administered or overseen by the state’s treasurer’s office. Maine does not have a program yet, but most ABLE programs allow residents of other states to create accounts. Generally, ABLE accounts are run by state treasurers’ offices, not by financial institutions. Our firm has worked with the Ohio STABLE account, and it is easy to open an account online at When Maine develops its own program, Maine beneficiaries will be able to move their accounts to the new program.

Although there are some differences between the ABLE programs in the various states (for example, some offer debit cards and the programs charge different fees), these are the key features and restrictions for all ABLE accounts:

  • In order to meet the criteria for an ABLE account, the beneficiary must be determined to have met the disability criteria before age 26 or have a physician’s certificate that includes a physician’s diagnosis and meets the disability criteria.
  • The ABLE account may be established and administered by the individual or by his or her agent under power of attorney, parent, or legal guardian.
  • A beneficiary can have only one ABLE account, but contributions can be from any source including that individual, family members, friends, or a trust.
  • There is a maximum contribution amount per year which is equivalent to the federal gift tax exclusion, currently $15,000 (in 2019 and the same in 2020) in a single year. This is not per donee, but per account. As will be discussed in the third article in this series, ABLE beneficiaries who work and earn income may contribute even more per year to their ABLE accounts.
  • An ABLE account may accept cash but not appreciated stock. The range of investments will be decided by the state which established the account, and the beneficiary may direct the investment of contributions to the program or earnings no more than two times per year.

Note: Federal law provides that, after outstanding qualified disability expenses have been paid, a state’s Medicaid program may claim reimbursement for medical assistance provided since the ABLE account was opened. This is similar to the Medicaid payback required for first party special needs trusts (SNTs). But see the third article in this series about a recent Maine law which protects the ABLE accounts of Mainers.

ABLE accounts are tax-advantaged savings accounts, and come from tax law. They are similar to 529 education accounts (an example is Maine’s NextGen plan), and are sometimes referred to as 529A ABLE accounts which is a reference to its location in the Internal Revenue Code. Contributions to an ABLE account are not tax deductible, but income earned in the account will not be taxed (similar to a Roth IRA).

Withdrawals from an ABLE account for “qualified disability expenses” will not be subject to income tax. The list of qualified expenses is very broad and essentially includes most purchases made to improve the health, independence, and quality of life of the beneficiary. Examples of non-taxable expenses include education, transportation, health, legal fees, and basic living expenses. Distributions may even be made for food and housing as explained in the second article in this series.

When an individual has excess income or assets and is at risk of losing SSI or MaineCare, an ABLE account may be the solution. Often, though, there will be too many assets for an ABLE account to be the only solution. In those cases, it may be necessary to establish a special needs trust, too. The two solutions can operate together. In other cases, the individual will be ineligible for an ABLE account due to the date of onset of the disability, and a special needs trust may be the only solution.

An attorney who focuses on special needs planning will have answers and tools to guide an individual with disabilities in maximizing all resources. For more details about ABLE accounts for individuals with disabilities, see the second and third articles in this series.

ABLE Accounts: Housing and ISM

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The ABLE account is a relatively new planning tool that offers an individual with eligible disabilities a tax-free savings option that does not interfere with their eligibility for meanstested government benefits. As discussed in the first article in this series, an individual who had a disability before age 26 may accumulate savings in an ABLE account without risking eligibility for means-tested public benefits such as Supplemental Security Income (SSI) and Maine Medicaid (MaineCare).

A significant advantage of an ABLE account is that distributions from an ABLE account can be used for housing-related expenses without causing a reduction in the beneficiary’s SSI payment. To explain this important benefit, we need to review the Social Security Administration’s (SSA’s) rules regarding income.

SSI is only available to individuals with limited income and assets. If an individual is receiving SSI and then is given cash by a friend or family member or by a trustee of a special needs trust for the benefit of that individual, the SSI benefit will be reduced dollar-for-dollar.

Example 1: Assume Martha has a daughter named Daphne, and assume that Martha gives Daphne $1,000 in the month of January to pay rent. Daphne would lose her SSI for the month because of the receipt of that cash which exceeded her SSI benefit of $783 in 2020.

When the individual on SSI receives food and shelter from someone else, the SSA treats that as a special category of unearned income called “in-kind support and maintenance” or ISM. That is because SSI is intended to pay for food and shelter. Therefore, when the individual receives ISM, the SSI benefit will be reduced dollar-for-dollar but up to a maximum of one-third of the SSI benefit.

Example 2: Assume that Daphne lives with Martha rent-free. Instead of receiving the full SSI benefit of $783 in 2020, Daphne’s SSI will be reduced to $522 ($783 – $261).

Example 3: The same reduction will occur if, instead of giving Daphne $1,000 to pay for rent, Martha pays the landlord $1,000 directly.

How can an ABLE account help? Any distribution from an ABLE account for a qualified disability expense (QDE) will not result in an SSI reduction. Typical QDEs include education, transportation, legal fees, health and wellness, funeral and burial expenses, and basic living expenses, and housing. For this purpose, housing expenses include a mortgage, real estate taxes, rent, heating fuel, gas, electricity, water and sewer, and garbage removal. Let’s apply this to Martha and Daphne:

Example 4: What if Martha contributes $1,000 to Daphne’s ABLE account and then Daphne withdraws $1,000 and uses the funds in the month of withdrawal to pay her own rent? The SSA will not reduce Daphne’s SSI benefit.

However, any distribution from an ABLE account that does not fall into a QDE category is considered taxable income to the beneficiary of the account, and the IRS will assess a 10% penalty tax on the income portion of the funds used for the non-qualified expense. Additionally, the SSA will count as a resource any distribution from an ABLE account not used for a QDE.

How might a special needs trust work in conjunction with an ABLE account? A carefully drafted special needs trust might authorize the trustee to transfer money into the beneficiary’s ABLE account to maximize the benefits of both tools simultaneously.

Example 5: Assume that Martha includes a third-party special needs trust for Daphne’s benefit in her estate plan. When Martha dies, assets that she leaves for Daphne’s benefit are directed to the trust to be managed by a trustee in that trustee’s sole and absolute discretion. Those trust assets will be treated as “noncountable” to Daphne and will not affect her eligibility for SSI and MaineCare. The trustee could distribute cash to Daphne as described in Example 1 or pay the landlord directly as described in Example 3. In both cases, there would be adverse consequences for Daphne’s SSI benefits. Instead, the trust should make distributions from the trust to Daphne’s ABLE account just as Martha did in Example 4. Daphne (or her guardian or agent under power of attorney) could, in turn, use those funds to pay the $1,000/month rent or for any other QDE.

When considering whether to establish an ABLE account, the individual with disabilities (or his or her legal representative) should ideally consult with a special needs planning attorney about its suitability for that particular individual. For more details about ABLE accounts for individuals with disabilities, see the first and third articles in this series.

ABLE Accounts: Resources and Developments, Including a Special Opportunity for Mainers

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The ABLE account was passed by Congress in December of 2014, and it has evolved over the handful of years since then through changes in the law and the adoption of regulations expanding the understanding of, and uses for, ABLE accounts.

One recent piece of legislation increased the attraction of ABLE accounts for individuals who live in Maine. The federal ABLE legislation passed in 2014, provides that a state’s Medicaid program may claim reimbursement for medical assistance provided since the ABLE account was opened. Most states seek that reimbursement. But Maine is one of a handful of states which do not require payback. In June of 2019, Governor Janet Mills signed LD 1637 which provides:

  • ABLE balances are exempt for all means-tested benefit programs in Maine;
  • Earnings remain state tax-free following distribution; and
  • Balances are exempt from payback to the State of Maine.

This avoidance of payback will apply even if the individual is the beneficiary of an ABLE account in another state.

Other updates and improvements to ABLE accounts were ushered in under the so-called Tax Cuts and Jobs Act (TCJA) of 2017.

  • In most cases, the annual contributions from all sources to a designated beneficiary’s ABLE account are capped at $15,000. Starting in 2018, a beneficiary who works can also contribute part (or possibly all) earned income to their ABLE account.
  • This additional contribution is limited to the poverty level amount for a one-person household. For 2020, this amount is $12,490. (This additional contribution may not be made if the employer contributes to a workplace retirement plan on the employee’s behalf.)
  • In addition, starting in 2018, ABLE account beneficiaries are able to qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions qualify for this special credit designed to help low- and moderate-income workers. Claimed on Form 8880, Credit for Qualified Retirement Savings Contributions, this credit can reduce the amount of tax a person owes or increase their refund.
  • Families who had set up a 529 account for a child with a disability who will not attend college are allowed to “rollover” up to the annual contribution limit ($15,000 in 2020) from a 529 account to an ABLE account for that child.
  • In addition, the TCJA allows rollovers from a 529 account that was set up for the benefit of certain family members of an individual with a disability to an ABLE account for the individual. Any rollover must be accomplished within 60 days. The rollover is counted as part of the $15,000 per year ABLE contribution, and any extra amount rolled over would be treated as income to the ABLE beneficiary.

For more information about the current state ABLE accounts, consider these resources:

  • Remember that the ABLE accounts spring from the Internal Revenue Code, specifically 26 U.S.C. § 529A.
  • A September 7, 2017, letter from the Centers for Medicare and Medicaid Services titled “Implications of the ABLE Act for State Medicaid Programs” guides State Medicaid Directors.
  • The Social Security Administration adopted its ABLE regulations in March of 2018, and they can be found in the Program Operations Manual System (POMS) at SI 01130.740.
  • In April of 2018, the SSA issued POMS SI 01120.201 regarding trusts. At SI 01120I.1.c and h the POMS makes it clear that funds transferred from a special needs trust to an ABLE account established by the trust beneficiary, or by an individual with signing authority, are not income to the trust beneficiary.

It is possible that future legislation could increase the availability and usefulness of ABLE programs. The proposed ABLE Adjustment Act would allow individuals with a disability onset of prior to age 46 to open ABLE accounts.

To keep up-to-date on developments with ABLE accounts, watch the website of the Maine Elder Law Firm. You may also want to receive our semiannual newsletter on special needs planning. If so, call Jennifer Millar at 207-404-4552 and provide your email address and mailing address to be added to our mailing list.