Should You Establish an ABLE Account? Understanding the Positives and Negatives
If you, or a family member, has a long-term disability, you have the ability to establish a tax-free savings account that can be accessed to pay for certain expenses without harming your ability to qualify for Medicaid and other means-tested government programs. This option was made available through the Achieving a Better Life Experience (ABLE) Act.
Below is a list of some positives and negatives associated with ABLE accounts:
Positives Associated with ABLE Accounts
- You can set up your own account with your own funds instead of relying on a parent or loved one to establish a first-party special needs trust.
- You can manage your funds in your own ABLE account, which in turn reduces your reliance on other friends and family members for assistance and making it easier for you to access these funds.
- The funds you deposit into your ABLE account will grow tax-free and are not subject to gift tax restrictions.
- The new tax reform legislation signed into law in 2017 allows the transfer of 529 funds to your ABLE account.
Negatives Associated with ABLE Accounts
- You can only establish an ABLE account if your disability was diagnosed prior to turning age 26. In contrast, you can set up a special needs trust at any point.
- ABLE account contributions are typically limited to $14,000 per year and can hold up to $100,000 without effecting your eligibility for Supplemental Security Income (SSI).
- If funds remain in your ABLE account upon your passing, they need to first be used to reimburse the government for Medicaid benefits you received. Once fully reimbursed, the remaining funds will have to pass through probate in order to be transferred to your heirs. In contrast, if you establish a special needs trust, you can bypass probate.
Here is an informative video about ABLE Accounts:
Have Questions? Speak to an Experienced Disability and Medicaid Planning Attorney
ABLE accounts can be a useful tool in a variety of situations for someone with a disability, though there are certain drawbacks that may make a special needs trust a more attractive savings vehicle. Prior to setting up your ABLE account, take the time to meet with a special needs planner to discuss your options. The legal team at InSight Law is ready to help.