May 18, 2015 / 12:20 PM / 4 years ago

The limitations of ABLE accounts for the disabled

LOS ANGELES (Reuters) - Nearly six million people with disabilities may benefit from new tax-free savings plans approved by Congress last year, but the accounts may not be as helpful or available as quickly as originally promised.

U.S. Secretary of State John Kerry (L) testifies at the Senate Foreign Relations Committee regarding the "Convention on the Rights of Persons with Disabilities" in Washington November 21, 2013. REUTERS/Gary Cameron

After a decade of lobbying by disability advocates, Congress passed The Achieving a Better Life Experience (ABLE) Act in the final hour before adjourning in December.

The ABLE Act allows families to set aside money that can be used tax-free for a disabled person’s expenses without risking the loss of government benefits.

The beneficiary must have experienced the disability before age 26 to qualify for an ABLE account, which will be administered by the states’ 529 college savings programs.

The National Down Syndrome Society has estimated that about 5.8 million individuals and families could benefit from the accounts.

Disability advocates had predicted that ABLE accounts would start becoming available later this year.

But one of the states that’s farthest along in creating them, Virginia, will not be able to offer the accounts until “the first half of 2016,” said Mary Morris, chief executive of the Virginia529 College Savings Plan.

Another state, Massachusetts, plans to make an announcement “in late fall” about its program but currently is not committing to a roll-out date, said Martha Savery, communications director for the Massachusetts Educational Financing Authority.


So far, 11 states have enacted laws to create ABLE accounts, while six other states have passed bills and are waiting for gubernatorial signatures. Another 23 are considering such legislation, said Stuart Spielman, senior policy advisor and counsel at Autism Speaks, a research and advocacy group.

The 11 states that have laws in place include Arkansas, Kansas, Louisiana, Maryland, Massachusetts, Montana, North Dakota, Utah, Virginia, Washington and West Virginia.

“It’s gratifying that there is tremendous interest in having this vehicle available,” Spielman said. “The states have said, ‘We really like this.’”

Families have to wait for their states to act, since the law allows them to open just one account per beneficiary and only in the state where the disabled person resides.

That contrasts with college savings plans, which don’t limit where or how many accounts can be opened.

To further reduce the accounts’ cost in lost tax revenue, Congress limited the amount that can be saved to $14,000 each year and required that any money remaining in the accounts after the death of a disabled person be subject to reclamation by Medicaid.

Currently, people with disabilities cannot have more than $2,000 in assets and still qualify for Medicaid, the government health program for the poor, and Supplemental Security Income, which provides stipends to low-income people who are elderly, blind or disabled.

With ABLE accounts, people could have up to $100,000 in assets before their savings affects their ability to qualify for these benefits.


But just as the estates of elderly people are subject to what is known as a “clawback” if they receive Medicaid benefits, the estates of disabled people who die with money in their ABLE accounts would also be subject to Medicaid claims.

That’s a fairly significant drawback for many families, said financial planner, John W. Nadworny.

These families may prefer to save for their children in their own names and then set up a special needs trust in their wills to take care of their children after the parents’ death, said Nadworny, director of special needs financial planning at Shepherd Financial Partners in Winchester, Massachusetts.

Still, ABLE accounts would be a boon for disabled people who want to save on their own without jeopardizing government benefits, Nadworny said.

And publicity about the accounts will help families focus on the need to save for children with disabilities, rather than simply hope the government will take care of them.

“The government will do the best it can” but benefits aren’t guaranteed, said Nadworny, who co-authored the book, “The Special Needs Planning Guide: How to Prepare for Every Stage of Your Child’s Life.”

“This educates people that they have to save.”

Editing by Beth Pinsker and Bernadette Baum

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