Some New Jersey residents with disabilities can now open ABLE (Achieving a Better Life Experience) accounts to better meet their living expenses.
What is the ABLE Act?
The ABLE Act was passed in 2014 by President Obama and signed into law in New Jersey in January 2016. The law created tax-advantaged savings accounts for people with disabilities, much like college savings accounts under Section 529 of the IRS code. You may use funds in these ABLE accounts to pay for disability-related expenses, and you do not have to count them as income for tax purposes or countable resources for federal means-tested benefits programs such as SSI, SNAP, or Medicaid. The rules for state means-tested programs vary. Some questions still need to be answered about ABLE accounts in New Jersey: How will New Jersey administer accounts? How will the money be invested? How will beneficiaries make withdrawals? How will the state decide whether withdrawals are qualified expenses?
This article explains who qualifies, how the accounts are opened, and how the funds can be used. It describes some of the rules as they are available now.
How do I know if I qualify for an ABLE account?
May I have more than one ABLE account?
You may only have one ABLE account open at a time, but you may open an ABLE account either in your own state or through an ABLE program in any state that allows enrollment by non-residents. As of the date of publication, some states have operational ABLE programs, and many other states will open programs in the coming months. Ohio’s STABLE Program, ABLE Tennessee and Nebraska’s ENABLE Program are open for national enrollment, and residents of New Jersey can apply online. New Jersey’s ABLE Program will be administered by the Division of Disability Services of the Department of Human Services with open enrollment expected in October 2016.
If you are considering opening an ABLE account for yourself or another person, you also may wish to speak with attorneys or financial planners who are familiar with ABLE accounts to best determine how an ABLE account can meet the needs of your particular situation. The SSA Program Operations Manual System (see SI 01130.740 Achieving a Better Life Experience (ABLE) Accounts) provides definitions of key terms, rules of ABLE accounts, and examples applying these rules.
How do I open an ABLE Account?
Some state ABLE programs offer online enrollment. Ohio’s STABLE program offers an online application that takes approximately 20 minutes to complete. You may establish an ABLE account on your own behalf, or on behalf of a minor child or other person for whom you are the parent, legal guardian or power of attorney. There may be fees for establishing and maintaining ABLE accounts.
ABLE accounts are investment accounts, not bank accounts, so you will need to choose investment options. Since you may only have one ABLE account open at a time, you should consider all fees and investment options when opening an ABLE account. The ABLE National Resource Center has information and resources about ABLE. You may also want to speak with an attorney or a financial planner.
How do I add money to my ABLE account?
The designated beneficiary is the owner of an ABLE account. Any person, including friends or family, a corporation, trust, or other legal entity may add money, called a contribution, to an ABLE account.
There are some limits to the contributions you may make:
You may make payments with cash, check, electric funds transfer, payroll deduction, and automatic contribution plans. States may set minimum contribution amounts, but these limits should be low. Contributions are not tax-exempt donations for the contributor.
Funds can also be added to an ABLE account through a “rollover”—when you transfer all or some of the funds from one ABLE account to the ABLE account of a member of the original beneficiary’s family. (Family includes sibling, stepsibling and half-sibling, by blood or by adoption.) You should also be able to transfer all funds from an ABLE account in one state to an ABLE account in another state (“program to program transfer”) without any tax penalty, as long as you only have one ABLE account open at a time.
How do I take funds out of my account?
The withdrawal of funds (called a distribution) will vary by state. Options may include debit cards, direct payment to service providers, and direct payment into other accounts. Some states, such as Ohio, have options for people with signature authority to restrict where the beneficiary can use their debit card. Other states, such as Tennessee, require a written form to make a withdrawal, and it takes 5-10 days to process. You should consider the convenience, protections, and restrictions of withdrawal methods offered by state ABLE programs when choosing the program that is right for you.
What are Qualified Disability Expenses or QDEs?
Distributions from your ABLE account must be spent on “qualified disability expenses” in order for it to not count as income or a countable resource. Qualified disability expenses (QDEs) are expenses related to the blindness or disability of the designated beneficiary and for the benefit of the designated beneficiary in maintaining or improving his or her health, independence, or quality of life. A QDE includes, but is not limited to, the following types of expenses:
Qualified Distribution Expenses are not limited to expenses for items for which there is a medical necessity or which provide no benefit to others. For example, an iPad used by the beneficiary and used by members of the beneficiary’s family members will qualify as a QDE. Other potential QDEs include mental health, medical, dental and vision expenses not covered by Medicaid and services like respite, personal care, therapy, books, educational tutors, and mass transit costs.
What if I am no longer disabled?
If you no longer have a disability, no distributions can qualify as QDE’s and no contributions to the ABLE account will be accepted. However, you may still keep your ABLE account, and if your disability reoccurs, you can resume using your ABLE account.
How do ABLE accounts affect income tax and means-tested benefits?
Generally, the following are not counted as income for tax purposes or as a countable resource for means-tested benefit programs:
The balance of an ABLE account over $100,000 is included for income tax purposes and for means-tested benefit programs. If the amount of your ABLE account balance and other resources causes you to go over the $2,000 SSI countable resource limit, a special rule applies which suspends your SSI cash benefit until the ABLE account balance falls back below $100,000. This suspension does not make you ineligible for SSI and you will not need to reapply for benefits once your accounts falls below $100,000. There is no effect on your ability to receive medical benefits through Medicaid.
Withdrawals spent on expenses that do not qualify as QDEs are countable resources for means-tested benefit programs, and there will be an extra 10% tax penalty on the earnings part of the withdrawal.
There are some exceptions to these general rules, and you may wish to consult with a financial planner or an attorney to determine the effects of an ABLE account on your income tax and your eligibility for means-tested benefit programs.
Death of Designated Beneficiary and Medicaid Pay Back
When the beneficiary dies, the state in which the beneficiary lived may file a claim to all or part of the funds in the account to reimburse the state for money spent on the beneficiary through their state Medicaid program. This reimbursement to the state should be paid only after the payment of all outstanding payments due for the qualified disability expenses of the designated beneficiary, including funeral costs.
Maintaining an ABLE Account: Important Reminders
This information last reviewed: Oct 12, 2016