ABLE Accounts
Although what I write about in this column are serious topics, I typically allow my personality to show through with a little humor, even smart-aleckiness
(if that's even a word). This time, though, I feel I have come across information the gravity of which deserves a more serious tone.
I'll try to behave.
Show of hands: Who has a family member or friend who is caring for a child or adult child with disabilities? I bet most of us do. (Now I very much dislike the term “disabled”, but for the sake of simplicity, that's the term I'm going to use here.) If that person who is disabled is receiving public assistance, such as SSI benefits, the government prohibits him/her from having assets greater than $2,000, in the vast majority of cases. That's fine when the person is a child, but what happens when that child becomes an adult? Parents struggle to make plans for how that now-adult person is going to care for himself/herself after the parents are gone. Special Needs Trusts and other such vehicles exist and are perfect in many situations, but what if they're not?
Enter the ABLE account. The Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (The ABLE Act) is a game changer. Its origins lie with a group of parents sitting around a kitchen table who decided to make something happen, and boy, did they. The first ABLE accounts came to be in 2016 and, quite simply, they allow an investment account to be set up for a disabled person. The growth in the account is tax free (as long as the withdrawals are for qualified expenses, which are reasonable), and the amount in the account does not count against that disabled person for benefits such as SSI, Medicaid, etc. The tax code that allows ABLE accounts is the same that allows college savings plans, code 529; an ABLE account is a 529-A plan. Like college savings plans, 529-A plans are administered by states, so all are not created equal.
So how does this work? Anyone can establish an ABLE account for a disabled person, or the person can do it himself/herself; the disabled person is the account owner and beneficiary. Only one ABLE account is allowed per person, and the owner must have become disabled before the age of 26. (Don't misinterpret this to mean that the person must be under age 26 to establish the ABLE account.) Money can be contributed to the account by anyone – family member, friend, even the account owner. Contributions are made after-tax and offer no federal tax deduction, but most state plans offer a state tax deduction for contributions by residents of that state. Investment choices vary by plan, but generally range from very safe to fairly aggressive. Most plans have a debit card feature, and many even have a checking account feature, all to make access to the money in the plan uncomplicated for the owner.
For 2019, the maximum per-year contribution to an ABLE account is $15,000. The maximum allowed in the account in total varies by state, but most hover around $300,000. However… and this is important… only the first $100,000 in ABLE accounts can be exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary's SSI cash benefit would be suspended until such time as the account falls back below $100,000. It is important to note that while the beneficiary's eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid. (www.ablenrc.org)
What if a disabled person is not receiving SSI benefits? He or she can still qualify for an ABLE account with sufficient proof of a disability provided by a doctor.
Mississippi does not yet have its ABLE plan in place, but it's under construction. In the meantime, Mississippians are eligible to establish a plan under any state that allows non-resident ownership, and that's most or all of them. To determine the best state under which to establish a plan, try the interactive map at http://www.ablenrc.org/state-review.
I cannot begin to provide all the necessary information on ABLE accounts in this forum, but I wanted to begin the conversation. This is a new development, and I believe it's a powerful one. And one of the key features of the account is that many DO allow financial advisor assistance, so parents and families of persons with disabilities – or the persons, themselves – are not having to navigate these new waters alone. To learn more, find the ABLE National Resource Center online and do a little digging, then call me.
Barbara Runnels Coats*, FICF, RICP, Modern Woodmen of America Financial Representative.
*A registered representative. Securities offered through MWA Financial Services Inc., a wholly
owned subsidiary of Modern Woodmen of America, 1701 1st Avenue, Rock Island, IL 61201,
309-558-3100. Member: FINRA, SIPC. Past performance does not guarantee future results. Tax issues can be complex. Consult your tax professional before making a decision.