A Savings Plan for Disability Costs: ABLE Accounts in New York
01/20/2022The Achieving Better Life Experience Act (ABLE Act) (26 U.S.C. § 529A) allows qualified individuals with disabilities to keep Medicaid, SSI and other government benefits while saving for disability related expenses on a tax-free basis.
What is an ABLE Account?
- Section 529A of the Internal Revenue Code permits a state to establish and maintain a type of tax-advantaged savings program, a qualified ABLE program, under which contributions may be made to an account (a 529A) that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account who is a resident of that state and who is disabled.
- ABLE accounts are tax-advantaged savings accounts for eligible individuals with disabilities.
- ABLE accounts are similar to 529 education accounts and are administered by individual states. The funds in ABLE accounts are invested and grow tax-free. For distributions to be tax-free, they must be made for a qualified disability expense.
- ABLE accounts allow individuals to maintain eligibility for means tested government programs such as SSI and Medicaid.
Who can open an account?
- An eligible individual.
- An eligible individual’s parent or guardian.
- An authorized individual (someone with power of attorney).
How many ABLE accounts can an individual have at a time?
- A person may only have one ABLE account at any given time.
Who can contribute to it?
- Anyone can contribute to an ABLE account.
- You can contribute up to $16,000 per beneficiary in 2022 (more for working individuals).
- The NY ABLE account maximum contribution limit is $520,000.
Who is eligible for an ABLE account in NY?
- Must be a resident of New York State at the time of application.
- A person can open an ABLE account at any time, but the disability must have occurred before reaching 26 years old.
- The beneficiary must be diagnosed with a qualifying disability before 26 years of age and either:
1. classify as blind (as defined in the Social Security Act); or
2. receive or be entitled to receive SSI or Social Security Disability Insurance (SSDI) because of the disability; or
3. have a disability that is included in the Social Security Administration’s List of Compassionate Allowances Conditions; or
4. have a written diagnosis from a licensed physician documenting a medically determinable physical or mental impairment which results in severe functional limitations, that can be expected to last for at least 12 months or can cause death.
2. receive or be entitled to receive SSI or Social Security Disability Insurance (SSDI) because of the disability; or
3. have a disability that is included in the Social Security Administration’s List of Compassionate Allowances Conditions; or
4. have a written diagnosis from a licensed physician documenting a medically determinable physical or mental impairment which results in severe functional limitations, that can be expected to last for at least 12 months or can cause death.
Government Benefits:
- ABLE account balances under $100,000 are disregarded from the SSI resource limit.
- Medicaid eligibility continues, regardless of balance.
- If a NY ABLE account balance causes the SSI resource limit of ($2,000) to be exceeded, then SSI benefits will be suspended until the account balance no longer exceeds the resource limit.
Tax benefits:
- Withdrawals from an ABLE account are tax-free when used to pay for qualified disability expenses.
Qualified disability exemptions:
- Qualified disability expenses are expenses related to the blindness or disability of the account owner and are for the benefit of maintaining or improving his or her health, independence, or quality of life. Qualified disability expenses are interpreted broadly and are not limited to expenses of medical necessity.
- Qualified disability expenses include but are not limited to:
- Private & public education (preschool – post-secondary education)
- Housing
- Transportation
- Employment training and support
- Assistive technology and related services
- Personal support services
- Health
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Expenses for ABLE account oversight and monitoring
- Funeral and burial
Penalties:
- If you use your ABLE account for non-qualified expenses the earnings portion of the withdrawal is treated as income and subject to federal and state tax. You may also be subject to a 10% federal tax penalty.
- You should maintain copies of all receipts when using money from ABLE accounts.
Payback Provision Upon Death:
- When the beneficiary of an ABLE account dies, the state in which the person lived can file a claim against the remaining funds in the account to recoup Medicaid costs.
