For the tax years beginning after December 31 2014 the key provisions for the new law include:
- Individuals can use the ABLE accounts to support themselves and families can also use the accounts to support their dependents
- Funds held in an ABLE account will receive no federal taxation and assets can be accumulated invested grown and distributed free from federal taxes. Contributions to the accounts are not deductible but assets in the account grow tax free and are protected from tax as long as they are used to pay qualified expenses.
- Federal tax benefits will not be provided to those who contribute to an ABLE account.
- If the money is used for disability-related expenses it can be withdrawn from an ABLE account tax free. Expenses qualify as disability related if they are for the benefit of a person with a disability and are related to the disability. They include education housing transportation employment support health prevention and wellness costs along with assistive technology and personal support services and IRS-approved expenses.
- Distributions taken for non-qualified expenses are subject to income tax on the portion of such distributions attributable to earnings from the account plus a 10% penalty on that portion.
- One ABLE account is allowed for each disabled person and total annual contributions by all individuals to any one ABLE account can be made up to the gift tax exclusion amount ($14000 in 2014 and 2015 which is adjusted annually for inflation).Aggregate contributions are subject to the State limit for education-related Section 529 accounts.
ABLE accounts can generally be rolled over only into another ABLE account for the same individual or into an ABLE account for a sibling who is also an eligible individual.
- All eligible individuals must have become blind or disabled before turning 26 and must be entitled to benefits under the Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) programs. You do not need to receive SSI or SSDI to open or maintain an ABLE account. Ownership of an account does not confer eligibility for these programs either. You may become eligible if a disability certificate is filed with the IRS.
- Although SSI payments are suspended while a beneficiary maintains excess resources in an ABLE account they have no impact on Medicaid or SSI. More specifically the first $100000 in ABLE account balances is exempted from being counted toward the SSI program’s $2000 individual resource limit. However account distributions for housing expenses are counted as income for SSI purposes. Assuming the individual has no other assets if the balance of an individual’s ABLE account exceeds $102000 the individual is suspended but not terminated from eligibility for SSI benefits but remains eligible for Medicaid.
- In the event of a death any amounts remaining in the account after Medicaid reimbusements will go to the deceased’s estate or to a designated beneficiary and will be subject to income tax on investment earnings but not to a penalty.
If you or a family member can benefit from an ABLE account schedule a consultation and Lindemeyer will walk you through all of the details of setting one up. If you need assistance with any additional financial or tax issues we can help. Let us know here what your needs are and we will get back with you promptly.
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