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ABLE Accounts: A Little Deflating

By Karen B. Mariscal

It’s as if the ball was stolen out of our hands at the 1 yard line. (Remember how the Patriots won the Superbowl in 2015?)

On December 19, 2014, President Obama signed into law the Achieving a Better Life Experience (ABLE) Act, enabling parents of children with significant disabilities to set aside funds to help pay their children’s expenses, tax-free, and without affecting their eligibility for public benefits. It is set up like a 529 account for the costs of education. The special needs community has been advocating for this for years, and it certainly sounds like a victory. But reading the fine print, it is not clear that these accounts will be of much help to parents or their children with disabilities.

First an explanation of how the accounts will work. Like a 529 Account, an ABLE account (officially a “529A” Account) can be used to save money tax-free. The money transferred into the account is post-tax, but any earnings on the money in the account is not taxed, and all distributions are tax-free, so long as the distribution is a qualified distribution expense, as discussed below. These accounts are only available to individuals who became disabled before age 26, but if they qualify, funds may be contributed at any age.

In addition to the tax benefits, another good thing is that the account value, up to $100,000, will be disregarded in determining eligibility for Supplemental Security Income (“SSI”) and Medicaid. In other words, a person can have up to $100,000 in an Able Account and still be considered to have less than $2000 in assets, thereby qualifying for SSI and Medicaid. So, this can be simpler than creating a special needs trust. (However, note that payments from an ABLE account for housing reduces SSI payments in the same way as other payments for housing.)

From a parent’s perspective, there are three major problems with the ABLE account:

First, due to budget constraints, Congress limited the amount that can be contributed to an ABLE account to $14,000 a year, from any source – and each person can only have one ABLE account, total. At that rate it will take a number of years before any tax savings could be significant, and regardless, a special needs trust probably will still be required if anyone may receive more than $14,000 in a year or $100,000 overall.

Second, if there is still money in the ABLE account when the child dies, the money goes to repay Medicaid – it cannot be left to another sibling, relative or organization. 

Third, the money in the account must used to pay for qualified distribution expenses, defined as “any expenses related to the eligible individual’s blindness or disability . . . including: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by regulations.” This definition, although fairly broad, has limitations – for example, it does not include food, entertainment, or vacations .(It is not yet clear how these restrictions will be enforced.)

Because of these restrictions, for many parents who want to set aside money for their handicapped child, the better option may be to keep the money in their own account and disburse it as they see fit, foregoing the meager tax benefits but maintaining the freedom to do what they want with the money.

So maybe special needs parents won’t be having a duck boat parade anytime soon, but there are situations in which an ABLE account may come in handy. Most importantly, it can be a way for disabled adults to keep more than the very restrictive SSI asset limit of $2,000. Higher functioning individuals who earn some money can put their extra earnings in the account. (SSI rules regarding earned income will still apply.) Individuals who inherit funds or get more than $2,000 in some other fashion can shelter small amounts in an ABLE account. The ABLE Act allows the beneficiary of the account to control the account themselves, unlike a special needs trusts. Thus ABLE accounts probably will be more helpful to the special needs adults themselves, rather than their parents.

The accounts also will be useful for someone such as a parent or grandparent who wants to make a gift of up to $14,000 without having to go through the trouble and expense of creating a special needs trust (although the money would be subject to the Medicaid pay-back rule, which would not be the case for a special needs trust).

Certainly it is a win to have ABLE Accounts as an option. Unfortunately the accounts cannot be opened just yet. The law states that qualified ABLE Programs must be established and maintained by the states, at the state’s option (similar to 529 accounts). In 2014, in anticipation on the passing of the ABLE Act, Massachusetts passed a law to set up such programs. But Massachusetts can’t get started until the federal regulations governing the accounts are finalized, which will take another few months. Massachusetts residents should be “able” to open ABLE accounts by early 2016, through the same brokerages that manage 529 accounts.

For those who are considering using an ABLE account in addition to or instead of a third-party supplemental needs trust, below is a chart comparing the two:

Comparing ABLE Accounts and Third Party Special Needs Trusts

Issues ABLE Account Third Party SNT Main Difference

Who can use?

Only persons disabled before age 26 Any person with a disability ABLE is limited and SNT can be used by anyone
Who can fund? Anyone, including person with disability Anyone, except person with a disability (must use first party SNT) ABLE can be funded by person with a disability’s own assets unlike the SNT
How many can person have? One Unlimited Person can only have one ABLE account but unlimited SNTs
Who can control? Person with a disability and likely his or her legal guardian, conservator, or agent Anyone except the person with a disability and his or her spouse ABLE allows person with a disability to retain control while SNT requires someone else to be in charge
How much can fund in a year? $14,000 (or annual gift exemption) Unlimited ABLE limit in how much can be funded and SNT allows unlimited funding.
Is funding gift-tax free? Yes No ABLE can be funded gift-tax free; an SNT is subject to gift tax (if funded during lifetime)
Is there a cap on how much can be in account? Yes, currently $100,000 limitation for SSI recipients and up to state 529-plan limitations ($350,000 for Massachusetts) No ABLE cannot be used for assets over $100,000 while SNT can be used for any amount
How is income taxed? No income tax Taxed as a non-granter trust except to the extent funds are used on behalf of the beneficiary SNT will be taxed on income earned while ABLE account will not 
What type of distributions can be made? Only “qualified disability expenses” as defined by government No limitation, except for certain disbursements may reduce or eliminate SSI or Medicaid eligibility ABLE has much stricter limitations on how it can be used than SNT

Watch for more information from us on ABLE accounts as they open in Massachusetts. For more information, contact Karen Mariscal at

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