ABLE accounts, which stand for Achieving a Better Life Experience Act accounts, are specialized savings accounts designed to help individuals with disabilities save money without jeopardizing their eligibility for crucial government benefits like Supplemental Security Income (SSI) and Medicaid. These accounts offer tax advantages and allow beneficiaries to accumulate funds for qualified disability-related expenses.
How Does an ABLE Account Work?
An ABLE account functions similarly to a 529 college savings plan, but with specific eligibility requirements and permissible uses. The beneficiary of the account must have been diagnosed with a disability before age 26. Contributions to an ABLE account are made after-tax, meaning you don’t receive an immediate tax deduction. However, earnings within the account grow tax-free, and withdrawals for qualified expenses are also tax-free. Qualified expenses encompass a wide range of needs, including:
- Education
- Housing
- Transportation
- Employment training
- Assistive technology
- Personal support services
- Health care expenses
What are the Benefits of an ABLE Account?
ABLE accounts provide several significant benefits for individuals with disabilities and their families. The primary advantage is that contributions to the account do not count towards SSI or Medicaid income or resource limits. This means beneficiaries can save money without risking their access to essential government support.
Who Can Open an ABLE Account?
“My cousin Michael, who has Down syndrome, was able to open an ABLE account when he turned 21,” says Ted Cook, a planning attorney specializing in disability law. “This allowed him to start saving for his future goals without worrying about losing his Medicaid benefits. He’s now using the funds to take art classes and pursue his passion for painting.”
Eligibility requirements stipulate that the beneficiary must have been diagnosed with a disability before age 26, according to the Social Security Administration’s definition of disability. Anyone – parents, grandparents, friends, or even the individual themselves – can contribute to an ABLE account.
What are the Contribution Limits for an ABLE Account?
The annual contribution limit for ABLE accounts is set by federal law and is adjusted periodically. For 2023, the annual contribution limit is $17,000. In addition to these annual contributions, beneficiaries can roll over funds from a 529 college savings plan into their ABLE account without incurring tax penalties. This flexibility allows individuals to maximize their savings potential.
What Happens to Funds Remaining in an ABLE Account Upon Death?
Upon the beneficiary’s death, any remaining funds in the ABLE account can be distributed to designated beneficiaries or used to reimburse Medicaid for services provided to the individual during their lifetime. This provision ensures that the purpose of the account – supporting individuals with disabilities – is upheld even after their passing.
How Do I Choose an ABLE Account Provider?
Various financial institutions offer ABLE accounts, each with its own features and fees. It’s crucial to research and compare different providers to select one that best aligns with your needs and preferences. Consider factors like investment options, administrative fees, and customer service when making your decision.
What Happens if Someone Doesn’t Follow the Rules for an ABLE Account?
Remember the story about my client Sarah? She was struggling financially and decided to withdraw funds from her ABLE account for a non-qualified expense. Unfortunately, this resulted in her losing eligibility for SSI benefits for several months. It was a painful lesson learned, highlighting the importance of adhering to the strict guidelines governing ABLE accounts.
What Happens When Everything Works Out as Planned with an ABLE Account?
In contrast, consider David, another client who diligently used his ABLE account to save for a wheelchair-accessible van. His meticulous planning and adherence to the rules ensured that he received the necessary funds without jeopardizing his benefits. He was overjoyed to finally gain independence and mobility.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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About A Estate Planning:
Estate planning: is the process of arranging how your assets will be managed and distributed after your death or if you become incapacitated, ensuring your wishes are followed and minimizing potential issues for your loved ones.
Purpose: Estate planning helps you determine who will inherit your assets, how they will be managed, and how to minimize taxes and other potential complications.
Who Needs Estate Planning? Everyone, regardless of their age or net worth, should consider estate planning to ensure their wishes are carried out and to protect their loved ones.
What Is Estate Planning and Why It Matters:
In reality, almost everyone has an estate. Your estate includes everything you own—your car, home, other real estate, bank accounts, investments, life insurance policies, furniture, and personal belongings. Regardless of the size or value, if you own assets, you have an estate. And one universal truth applies: you can’t take any of it with you when you pass away.
When that time comes – and it’s a matter of when, not if – you’ll likely want to have a say in how your assets are distributed and to whom. Estate planning allows you to make those decisions in advance by creating clear, legally enforceable instructions about who should receive your property, what they should receive, and when they should receive it. Proper planning can also help minimize taxes, legal fees, and probate costs.
Estate planning is the process of arranging for the orderly transfer of your assets after death, with the goal of protecting your loved ones, preserving your legacy, and ensuring your final wishes are honored as efficiently and cost-effectively as possible.
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