by Sarah Hannibal
Living life with a physical or mental disability makes the things many of us take for granted either impossible or much more difficult. Not only do disabilities take a toll on living life, but the financial ramifications can be just as severe. Unfortunately, the maze of regulations for government benefits is lengthy, complex and confusing. While this maze is not changing, starting soon, there will be a new tool in the financial toolbox for people with disabilities.
Later this summer, ABLE accounts will be available. These are made possible by the Achieving a Better Life Experience Act of 2014. An ABLE account will provide for:
- tax free growth of savings, and
- greater flexibility in providing financial resources for disabled persons.
Currently, people with disabilities can now access two government programs: Social Security Disability Insurance (not need based) and Supplemental Security Income or SSI (need based). SSI is provided to meet basic needs for food, clothing and shelter. To receive SSI, a person cannot have assets over $2,000 and there are strict limits on income.
Soon, disabled persons will also be able to access ABLE accounts. From a tax perspective, an ABLE account is similar to a 529 Account for education. The beneficiary/owner whose disability began before the age of 26 can receive contributions totaling $14,000 per year in an ABLE account. Assets grow tax free until they are withdrawn for qualifying purposes. The maximum balance allowed in an account is $100,000.
Assets in the account and money withdrawn for qualifying purposes are not counted against the disabled person for SSI criteria. So, a disabled person can keep her SSI benefits and have additional money for housing, education, transportation, health and wellness, and legal fees, among other items.
The biggest benefit we see is related to housing. Currently, housing options for persons on SSI are very limited. Any contributions for a disabled person’s housing costs above SSI benefits are considered income to that person. It doesn’t matter if the payments are from family or a Third Party Trust. If there are housing contributions, the disabled person must show this as income and risk losing her SSI benefits. Payments for housing from ABLE accounts will not be considered income for SSI benefits.
While not a panacea, ABLE accounts are a step in the right direction. They are worthwhile as a stand-alone account or a nice complement to an already established Third Party Trust.
Enrollment has not begun yet, but Ohio and Nebraska are very close to having their plans ready. Similar to a 529, you can choose any state to open your ABLE account. Keep an eye on these two programs this summer.