Legislation creating tax-advantaged savings plans for individuals with disabilities is making its way through Pennsylvania’s General Assembly. The Achieving a Better Life Experience (ABLE) Act, recently approved by the House Finance Committee, is Pennsylvania’s application of the federal ABLE Act, which passed in late 2014. Under the federal ABLE Act, each state is authorized to set up a program of specially designed tax-advantaged savings accounts that can be used to meet a child’s qualified disability expenses over the course of a lifetime.
As Pennsylvania moves through the process of setting up its ABLE program, let’s take a closer look at what these accounts are and how they can benefit families with children who have disabilities or special needs.
What is an ABLE Account?
ABLE accounts are similar to 529 college savings plans. Named after the enabling section of the IRS code, 529 plans have been successful at helping families save for higher education expenses while enjoying considerable tax benefits. Following this model, the ABLE program would provide for similar tax-advantaged savings accounts dedicated to covering costs for children with disabilities as they move through life.
Highlights of the ABLE Program
- Can be established if diagnosed with a disability before age 26 and the eligible persons are entitled to Social Security benefits based on blindness or disability
- An individual, parent or guardian may file a disability certification from a physician stating that an individual has had a medically determinable physical or mental impairment such as blindness or severe functional limitations that can be expected to last for a continuous period of more than 12+ months or result in death.
- Creates a Medicaid lien for Medicaid benefits
- Maintained by the state
- Must operate under federal guidelines
- $14,000 annual limit on nondeductible cash contributions on all contributors
- Can change investments two times per year
- Earnings grow tax free and withdraws exempt from taxes
- Can accumulate $100,000 of assets without loss of Supplemental Security Income (SSI) benefits
Individuals Remain Eligible for Other Benefits
One of the most important provisions of ABLE accounts is that they generally will not count against an individual’s eligibility for other federal or state need-based benefits or programs (including Medicaid and SSI benefits) – a previous roadblock for families looking to financially support a child with disabilities. Under the ABLE program, these children would now be able to benefit from the generosity of friends and family members who would like to contribute to their savings effort.
Qualified Disability Expenses
Money contributed to ABLE accounts will grow tax-free and can be withdrawn without tax consequence to pay for qualified disability expenses such as:
- Education
- Housing
- Transportation
- Employment training and support
- Assistive technology and personal support services
- Health care (including prevention and wellness)
- Financial management and administrative services
- Legal fees
- Expenses for oversight and monitoring
- Funeral and burial expenses
While the Pennsylvania ABLE program is not yet finalized, families concerned about the financial future of a child with disabilities should take heart that they will soon have a savings vehicle to provide a measure of long-term financial security.
Our investment advisory team is monitoring the progression of this legislation and the efforts by state officials to set up the program. Contact your RKL Wealth Management advisor with any questions about ABLE accounts and how they could benefit your family.
Contributed by Lauren R. McNeely, CRPC, of RKL Wealth Management LLC. Lauren is responsible for client portfolios, client service excellence, relationship management and business growth.
