BRIDGING THE GAP

ABLE Accounts and Exceptional Needs Financial Planning

If you are embarking in the world of special needs planning, you may have run across the term ABLE account and wonder what that means.  Today I will focus on ABLE accounts in Virginia.

ABLE accounts are similar to 529 accounts, but can be used for any qualified expense for a person with a disability.  They became available in 2014 under the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act.   In 2015, Virginia became the first state to approve and pass ABLE legislation after the federal ABLE Act was passed.  Virginia directed Virginia529 to create “529a.”  The key to an ABLE account is that having money in an ABLE account does not have an impact on disability benefits, and it provides tax advantages as long as it is structured and spent appropriately.  There are many details to be aware of in opening and maintaining an ABLE account.

 

1. Let’s talk about how eligibility is determined for an ABLE account.  Any eligible US citizen or legal resident – regardless of state residency – is eligible for an  ABLE account – with “eligible individual” being someone who developed their disability before age 26, and falls into one of three categories:

A.  Is entitled to Supplemental Security Income (SSI) or Social Security Disability Income (SSDI),

B.  Self-certifies that they have a condition listed on the social security administration’s List of Compassionate Allowances Conditions and have a signed qualifying disability diagnosis from a qualified physician; or

C.  Self-certifies that they have an eligible disability and have a signed qualifying disability diagnosis from a qualified physician.

Note that while the doctor’s diagnosis is not necessary to be available when opening the account, it must be readily available for verification.  Both physical and mental disabilities may qualify someone to open an ABLE account.

 

2.  Let’s talk about the impact on disability benefits.  While there is no limit to the amount that can be put into an ABLE account, if there is more than a $100,000  balance in the account, then the excess of $100,000 is considered an asset to the individual.  Therefore, SSI benefits could be reduced or suspended.  But, an account balance up to $100,000 is disregarded and has no impact on SSI benefits.

Additionally, if money is withdrawn to be spent on a housing expense, but it is not spent in the same CALENDAR MONTH, then it will be considered an asset of the individual with a disability.  This is tricky because if a payment is due on the first of the month, and money is withdrawn on the 31st to pay the bill, then this can interfere with SSI benefits.  If you are helping a person with a disability to manage their finances, you will want to make sure this is taken into account when setting up payment due dates and/or negotiate with those accepting payment on the due date.

Medicaid is not impacted by the balance in an ABLE account.  Virginia state means-tested benefits are also not affected by the balance in an ABLE account.

 

3.  Let’s discuss the types of expenses that can be paid for through an ABLE account.  What is considered a “qualified disability expense?”

        • Basic Living Expenses
        • Health and Wellness
        • Housing
        • Financial Management/Administrative Services
        • Transportation
        • Education and Training
        • Assistive Technology
        • Legal Fees
        • Expenses for Oversight and Monitoring
        • Funeral and burial

Make sure that the expense was incurred when the account holder was considered an eligible individual, that the expense relates to the disability, and the expense helps the account holder to maintain or improve health, independence, or quality of life.  Keep detailed notes and receipts, as this could be investigated by the IRS or Social Security.  If it is found to have been spent on a non-qualified expense, tax penalties and benefits recapture could be consequences.  Check with your state tax department and local social security office for more information.

 

4.  Are there any tax advantages to an ABLE account?  Absolutely!!  Virginia state residents will receive up to $2,000 per contributor, plus beneficiaries can qualify for the federal Saver’s Credit for up to $2,000 in contributions they make to their ABLE accounts.  Additionally, earnings grow free from federal and state taxes.

 

5.  Is there a limit to how much can be contributed to an ABLE account?  Currently, it is $15,000 – tied to the annual gift limit.  Those working who don’t have access to an employer 401k may be able to contribute an additional amount.  The maximum allowed ABLE account value is $500,000.  But as stated above, if the account owner is receiving SSI or SSDI benefits, an account value above $100,000 is not recommended.

 

6.  What happens to an ABLE account after the account holders death?  If the account holder was eligible for Medicaid benefits, then Medicaid can file a claim for repayment.  First, the decedent’s estate can use the balance to repay any outstanding Qualified Disability Expenses, including funeral and burial costs.

 

When looking at financial planning for an individual with a disability, an ABLE account is an important piece of the overall puzzle.  Offering additional freedom, allowing the individual to control their own finances, and coming with some great tax advantages, an ABLE account is a necessary tool for those with disabilities.

 

Disclosure: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Consult your financial professional before making any investment decision. The information provided does not constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.

DISCLOSURES

The material contained in the ’Market Commentary’ is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the material discussed, nor does it constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned. Past performance is not indicative of future results. Diversification cannot assure profit or guarantee against loss. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index.

Bridging where you are to where you want to be through timeless financial advice / Contact us today to get started!

James River Wealth Advisors
15521 Midlothian Turnpike, Suite 100
Midlothian, VA, 23113

E: inquiry@jrwealth.com
P: (804) 323-0517

Securities offered through J.W. Cole Financial, Inc (JWC) Member FINRA/SIPC. Advisory Services offered through James River Asset Management LLC. James River Wealth Advisors and James River Asset Management LLC are unaffiliated entities of J.W. Cole Financial.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Our site contains hyperlinks to other web sites operated by third parties. These links will take you away from our site. Please note that we do not guarantee the accuracy or completeness of any information presented on these sites.

You have Successfully Subscribed!