Many individuals and families who live with special needs are eagerly anticipating the availability of ABLE accounts. What is an ABLE account? Is it something you’ll want? Or need? Are you even eligible to have one?
“It’s been a long wait,” says Chris Collier1, CLU, ChSNC, who is a Special Care Planner and has earned the Chartered Special Needs Consultant designation.2 He’s with the Innova Financial Group3 in Cincinnati, Ohio, a general agency of Massachusetts Mutual Life Insurance Company (MassMutual). “The ABLE Act was introduced in both 2009 and 2011, but neither bill was enacted. In February, 2013, the third bill [the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act] was introduced. It wasn’t until the end of 2014 that the act was passed by the House of Representatives and the Senate, then signed into law by President Obama.”
What kind of account is it?
It’s an account that allows persons with special needs and their families to:
• save money (with a maximum annual contribution level and overall maximum account balance),
• choose from a variety of investment options,
• accumulate tax-free earnings,
• have money to pay certain expenses not covered by other sources,
• and have some protection against jeopardizing eligibility for government benefits because of exceeding the personal assets limitation.
The wait continues
The act added Section 529A of the Internal Revenue Code4. Although the bill is now law, regulations to fill in the details of the law have yet to be finalized. They have been published, and the IRS will accept comments regarding them until mid-September and hold a public hearing in October. The regulations are expected to be finalized following that hearing.
Meanwhile, ABLE programs must be established by each state. About 50% have already done so5. Remaining states are being encouraged to do so by the U.S. Department of Treasury. “We’re looking forward to the completion of this process,” says Collier. “We hope we can begin working with current and potential clients by year end to help them determine whether or not an ABLE account is appropriate for their needs.”
Who’s eligible?
“Not all persons with special needs will be eligible for an ABLE account,” explains Collier. The IRS code defines the level of disability a person must have, and the disability must have begun before the person was 26 years old. Anyone who meets these eligibility rules who is currently receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) benefits will automatically be eligible. Otherwise, individuals must qualify as disabled as defined by the SSI program. The IRS code will specify how individuals prove disability and what medical documentation will be required.
Limits on savings
The law will limit contributions to $14,000 per year (2015 limit) (an amount equal to the IRS gift tax exclusion). This amount is subject to adjustment annually for inflation. The maximum amount that may accumulate in an account will be set by state law and is expected to be about $300,000, based on what many states have already decided. Contribution maximums may vary by state.
ABLE and government benefits
Individuals who receive SSI and Medicaid benefits can save up to $100,000 in an ABLE account without jeopardizing benefits. However, if the balance exceeds $100,000, he or she will lose SSI monthly benefits. Medicaid benefits will continue regardless of the balance, but when the individual dies, states can access account funds to recover Medicaid benefits they’ve paid out. The account balance will not affect other needs based benefits a person might receive, such as food stamps or housing assistance.
“Potential loss of SSI benefits and the Medicaid payback feature are important aspects to consider,” explains Collier. “You’ll want to carefully monitor your account so you don’t jeopardize your SSI benefits. Or you may want to have a special needs trust instead. With a trust – unless it’s a pooled trust – you can name a family member or a charity, for example, to receive the money left when the trust beneficiary dies.” Other factors will also influence your decision to have a trust instead of, or in addition to, an ABLE account. Talk to your team of personal legal and tax advisors and financial professionals who are trained to serve the special needs community to review your overall financial strategy, your family’s financial needs and goals, and the options available to you
Covered expenses
The account will be a personal source of funds to pay certain expenses not covered by public and private sources such as SSI, Medicaid, and medical insurance policies. The types of expenses that can be paid include transportation, housing, education, medical and dental care, personal assistance, employment, financial management and legal services, and more as specified by the IRS.
Opening an account
ABLE accounts will be available through financial management professionals and possibly other sources, such as banks.. The IRS code will specify what information will be required to open an account and what documentation is needed to prove your disability. No account may be opened until the regulations have been finalized, and only one ABLE account may be opened for any individual who meets eligibility requirements.
“Unlike ordinary bank savings accounts that earn interest, ABLE accounts will offer a variety of investment options,” says Collier, “so you can choose an investment strategy with growth and risk levels that are right for you.” You may change your choices twice annually. A financial professional, such as a special care planner, can help you determine your potential expenses and your risk tolerance to help you meet savings goals and maintain government benefits.
“Individuals and families will contribute their own money to the account, but being able to save like this has never been an option for those who depend on SSI and Medicaid to help them manage expenses,” says Collier. “Money a person earns from employment can be contributed to the account, as well as gifts of money from family members up to contribution limits. Additionally, the tax-exempt earnings feature will let them save without the tax burden.”
Making withdrawals
Withdrawals should not exceed the expenses you wish to pay. Otherwise, the proposed IRS code states excess funds will be counted as personal assets and, if the amount is $2,000 or more, may jeopardize SSI and Medicaid benefits. Additionally, the excess amount will be subject to income tax and will be assessed a 10% penalty fee. The regulations will include other withdrawal regulations. Consult a tax attorney or other financial professional, such as a special care planner, to learn more.
Should you have an ABLE account?
“Just because you can put funds into this type of account doesn’t mean you should,” says Collier. “You can’t be sure until you look at your overall financial picture, which is something your personal legal and tax advisors, a special care planner, or other financial professional with experience in special needs can help you do. Are you saving appropriately for other family members? Are you covered by life insurance, disability income insurance, and property insurance? It’s important to determine whether or not you need these things before contributing funds to an ABLE account.”
The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
1 www.chriscollierclu.com
2 The Special Care Planner, a title used by MassMutual financial professionals, who have received advanced training and information in estate and tax planning concepts, special needs trusts, government programs, and the emotional dynamics of working with people with disabilities and other special needs and their families. The certificate program was offered by The American College in Bryn Mawr, PA, exclusively for MassMutual financial professionals. Additionally, a designation of Chartered Special Needs Consultant (ChSNC), which evolved from the certificate program, is now offered through the American College for financial professionals. MassMutual financial professionals who have completed the certificate program, or received the ChSNC designation can use the Special Care Planner title.
3 www.massmutual.com/connect-with-us/agencies/the-innova-financial-group
4 You can read the Internal Revenue Service’s proposed regulation in its entirety at www.federalregister.gov/a/2015-15280
5 You can find a current list of states that are working on or have signed the bill into law here: http://www.thearc.org/what-we-do/public-policy/policy-issues/able-legislationby-
state
* The Special Care Planner, a title used by MassMutual financial professionals, who have received advanced training and information in estate and tax planning concepts, special needs trusts, government programs, and the emotional dynamics of working with people with disabilities and other special needs and their families. The certificate program was offered by The American College in Bryn Mawr, PA, exclusively for MassMutual financial professionals. Additionally, a designation of Chartered Special Needs Consultant (ChSNC), which evolved from the certificate program, is now offered through the American College for financial professionals. MassMutual financial professionals who have completed the certificate program, or received the ChSNC designation can use the Special Care Planner title.
A Special Care Planner through MassMutual’s SpecialCareSM program can assist parents in drafting Letters of Intent and can help make a difference in the quality of life for an individual with special needs, their caregiver and other family members. Through SpecialCare you will learn valuable financial strategies, identify financial strategy solutions, access vital information, and meet certified specialists who will work with you and your professional advisors – your banker, accountant or financial planner, lawyer, social workers and health care providers – to review your financial picture and offer options to fit the needs of each situation. For more details, visit MassMutual’s website at http://www.MassMutual.com/specialcare, or call 1-(800)-272-2216.
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