States Adopt Laws for Savings Accounts for Persons with Disabilities

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On Dec. 19, 2014, President Obama signed into law the Stephen Beck Jr. Achieving a Better Life Experience, or ABLE, Act1 that allows persons with disabilities to save for their futures through tax-advantaged savings accounts. The act gives qualified Americans with disabilities the chance to save money and meet the added expenses of living with a disability without jeopardizing their eligibility for important supports such as Supplemental Security Income, or SSI, and Medicaid.

The National Down Syndrome Society–whose board member, Stephen Beck Jr., conceived the ABLE Act to assist his daughter with Down syndrome–estimates about 10 percent of the 58 million Americans with disabilities will qualify for ABLE accounts.2

Money saved in an ABLE account will not affect an individual’s eligibility for SSI, Medicaid and other public benefits governed by federal law. The legislation states that ABLE accounts, funded with private savings, will “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”3

The implementation of the new federal law depends on states adopting their own ABLE legislation establishing the framework for the administration of the accounts, much like the various state 529 accounts that allow savings for college education expenses.

Thirty-four states and the District of Columbia passed laws in 20154 to set up ABLE savings account structures, but none are fully implemented yet. Michael Morris, executive director of the National Disability Institute, expects five to 10 states to be open for business in 2016.5

The primary provisions of ABLE accounts under the federal law are:

  • An individual is eligible for an ABLE account if he or she has a significant disability with onset before the age of 26.
  • Accounts can be established and used for persons age 26 or over so long as the disability occurred before that age.
  • The annual contribution to the account is capped at $14,000, but will be adjusted annually for inflation.
  • Contributions to the account may be made by the beneficiary or family members and friends.
  • Allowed expenses are those related to the cost of living with a disability. Beneficiaries must keep documentation of their expenses; however, specific expenses are not approved by state administrators.
  • States may offer various investment strategies as they do with college savings plans.
  • States may offer their own tax incentives for ABLE account savings.

Many states have set a $300,000 limit for ABLE accounts, as they have for 529 college education accounts. The federal law exempts the first $100,000 from the SSI individual resource limit and would discontinue SSI monthly income benefits. Beneficiaries would, however remain eligible for Medicaid. States could recoup some Medicaid expenses upon the death of the beneficiary. 

In December 2015, as part of a larger tax package, Congress removed the requirement that a qualified individual could only open an ABLE account in his or her state of residency. For the following reasons,
the National Down Syndrome Society supports the change that will allow people to shop around:6 

  • It will speed up access to ABLE accounts as qualified individuals will not have to wait for their state to establish a program.
  • It will increase competition as people will be able to shop for state ABLE programs with investment options that meet their needs.
  • It will spur states to implement their ABLE programs quickly to sign up as many qualified savers as possible.
  • It may cause states to provide incentives to encourage savers to stay in state through state tax deductions or other incentives.

According to Morris of the National Disability Institute, the ABLE Act is transformative.7 No longer are persons with disabilities relegated to a life in poverty in order to receive SSI payments and health care
under Medicaid. Parents can set up savings accounts for children born with disabilities. Working-age adults can use ABLE assets to go to school, start a business, own a home or purchase assistive technology.

“Put more simply, the ABLE Act levels the playing field and ensures equal opportunity, as well as meaningful participation, in the social and economic mainstream [for individuals with disabilities],” said
Morris.

References

1 H.R. 647—ABLE Act of 2014
2 National Down Syndrome Society. “Achieving a Better Life Experience (ABLE) Act.” 
3 H.R. 647—ABLE Act of 2014.
4 National Down Syndrome Society. “ABLE State Legislation and Implementation Updates.”
5 Michael Morris. “Happy Birthday ABLE Act,” Huffington Post, Dec. 18, 2015.
6 National Down Syndrome Society. “Achieving a Better Life Experience (ABLE) Act.”
7 Michael Morris.

States Adopt Laws for Savings Accounts for Persons with Disabilities