Taxpayers caring for disabled children can look forward to a new savings vehicle that will help them cover certain expenses: The 529 ABLE account. This new savings account was brought into existence after President Barack Obama signed it into law on Dec. 19, 2014, along with the tax extenders package for that year. The legislation is called the Achieving a Better Life Experience Act, and it expands the tax code under Section 529 to create tax-advantaged accounts for disabled individuals.
As contributions go, individuals can contribute up to $14,000 — the current annual gift exclusion amount — in a given taxable year into one of these ABLE accounts. The account cannot exceed $100,000. The account has a payback provision to the State of Ohio for any Medicaid benefits extended to the disabled person during their lifetime.
Account holders can take distributions, provided they are for the beneficiary’s qualified disability expenses. That amount will not be included in gross income. In order to be eligible for an ABLE account, the beneficiary must be someone who had a disability that occurred before he or she turned 26.
One of the biggest benefits of the ABLE account is that the money held there is exempt from the $2,000 limit on personal assets for individuals who wish to qualify for public benefits. Generally, a disabled person with more than that amount is ineligible for Medicaid and Supplemental Security Income benefits.
Though the accounts are now allowed, they’re not here yet. The government has authorized the creation of ABLE accounts, but you can’t open one today. Ohio has not implemented the legislation authorizing the accounts. It is predicted that it would be at least a year before these 529 ABLE accounts become a reality. The 529 ABLE account is another tool for the disabled population but it does not replace Special Needs Trusts and or Wholly Discretionary Trusts due to the $14,000 restriction on contributions.
Keeping you informed are the trusted attorneys from Browning & Meyer Co., LPA. Please contact our law office with any questions about your estate planning needs.