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Special Needs Families: Now ABLE to Save
Published Date : July 31, 2018
When parents are asked what they want for their children in life, the answers you are most likely to hear are “to be happy and to be self-sufficient”. While there is no clear path to these goals for anyone, there are inherently more challenges facing children with special needs. Covering even the basics like healthcare and education, in addition to food, clothing and shelter, can be significantly more expensive and require more effort and planning. Until recently, special needs families were faced with an unusual financial planning challenge: How to save and invest for their child’s future needs, or allow the child to provide for themselves, and not lose access to the public benefit programs that are critical to their quality of life?
In 2014, the Achieving a Better Life Experience (ABLE) Act was passed to allow for the creation of tax-advantaged savings accounts for individuals with disabilities and their families. ABLE accounts allow the account owners, who are also the beneficiaries, to save with post-tax dollars and avoid taxes on the earnings in the account. Contributions can be made by anyone — family, friends, and the beneficiary. What is significant about ABLE accounts is they largely protect the beneficiaries’ ability to apply for public benefits such as the Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), and Medicaid. In the past, individuals needed to live in virtual poverty with no more than $2,000 in savings or retirement funds to remain eligible for these programs. For the millions of individuals living with disabilities, the savings in an ABLE account can help complement the benefits they receive from their own employment, government programs, and other sources such as a Special Needs Trust. ABLE accounts are also inexpensive to establish and administer.
Any individual that becomes significantly disabled before their 26th birthday is eligible to open an ABLE account. These criteria are met automatically for anyone under age 26 already receiving SSI and/or SSDI benefits. For anyone over age 26 and not currently receiving benefits, a physician can certify the severity of the disability, the associated limitations, as well as the age of onset.
While California has yet to roll out an ABLE program of their own, this shouldn’t be viewed as a limiting factor for CA residents. There are many other programs that are open to residents nationwide. ABLE accounts are currently subject to an annual contribution limit of $15,000 from all sources – including rollovers from a 529 Plan account – unless the beneficiary is working. In this case, the beneficiary can make additional contributions beyond the $15,000 limit up to the lesser of their compensation or the federal poverty limit for a one-person household, currently $12,140. ¹
Once an ABLE account is established, it is critically important to understand the coordination of benefits between the account, SSI, and Medicaid. The first $100,000 in an ABLE account is exempted from the SSI resource limit. However, any account balance over this threshold will suspend the beneficiary’s SSI cash benefit until the ABLE account balance falls below $100,000. The account balance has no effect on Medicaid benefits. ABLE accounts can be used to fund expenses related to the beneficiary’s disability that assist with maintaining health, independence, and quality of life. Also, be aware that there may be a Medicaid payback requirement if any funds remain in the ABLE account at the death of the beneficiary.
Parenthood is an amazing journey that can be filled with dramatic highs and lows. For parents of children with special needs, these moments can be significantly magnified. While the ABLE Act doesn’t provide a perfect solution for these families, it does recognize the need for more tools with which to help them.
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