ABLEAccountsIf you care for a disabled child, you may soon have a new savings option to help offset care and still be eligible for public benefits.

In December 2014, new legislation called the Achieving a Better Life Experience Act (ABLE) was signed into law. Under Section 529 of the tax code, ABLE allows taxpayers caring for disabled children to contribute up to $14,000 annually to help them cover certain expenses. Distributions taken for qualified disability expenses are tax free and the money in the ABLE account is exempt from the $2,000 personal assets limit so individuals can also quality for public benefits. In order to be eligible for an ABLE account, the person must have become disabled by the age of 26.

ABLE accounts are not yet available as each state is required to create and market their own plans, so it may be a year or so before they are accessible. For future consideration, however, ABLE accounts could be an alternative to a special-needs trust.

Here are some pros and cons of the current proposed ABLE accounts vs. special-needs trusts:

  • Both allow disabled recipients to qualify for Medicaid and SSI benefits; however, special-needs trusts can have an unlimited amount of assets and ABLE accounts are limited to the first $100,000 to be exempt from the $2,000 personal asset limit for SSI benefits.
  • In addition to medical, special-needs trusts can be used for other qualified supplemental expenses. Qualified expenses for ABLE accounts will be more limited.
  • If the disabled recipient dies, any money left in the ABLE account must be used to repay public benefits they received from the time after they opened the ABLE account.
  • Distributions from special-needs trusts may be taxable to the recipient. ABLE account distributions will be tax free if used for qualified expenses.
  • ABLE accounts may be best suited for those who may not have the resources or assets for a special-needs trust, or for those looking for additional tax-free benefits.

For further guidance, speak to your tax advisor about the best tax planning options for you and your family.