When you have a child with special needs, there can be plenty of concern regarding their care when the parents or other family members are no longer able to care for that child, due to age or illness. With the costs of assisted living facilities going up, families often struggle to find a way to save for these long term future concerns. However, the government has now introduced the ABLE account, which is administered at the state level. Consult with your tax professional or accountant, such as Patrick in Poughkeepsie, NY, to determine your eligibility for an ABLE account.
When distributions are taken, they are tax-free and can be used to a variety of living expenses, including housing, transportation, and job training. An added bonus is that these accounts are not included in mean-tested government programs to determine an individual’s eligibility. Once an ABLE account reached $100,000, certain federal benefits could be temporarily suspended, but once the account goes under that amount, the benefits would be reinstated.
State Regulations for ABLE Accounts
Keep in mind that much of the information available is based on the Federal Act, but these accounts are actually regulated by the states. Therefore, each state may apply different regulations and varying tax benefits, similar to the limits set on college accounts.
Qualified Expenses Under the ABLE Act
With the ABLE account, numerous expenses can qualify for tax-free withdrawals during the existence of the ABLE account. These expenses can be related to health care, employment, education and housing. However, the state regulations may factor in here, depending on the state you live in. Here are just a few examples of potentially qualified expenses:
However, you need to check with your accountant or tax professional to determine the eligible expenses for your state.
Impact on Federal Benefits
As we have mentioned, the mean-tested federal benefits would not include the ABLE account as income to determine eligibility. However, once the ABLE account reaches $100,000, SSI benefits would be suspended while the account remained at this higher level. Medicaid benefits would not be suspended during the same time period.
Another point to keep in mind is that if the beneficiary passes away, then the account’s funds must be paid to Medicaid depending on how much they used in benefits. The amount of payback will be calculated on Medicaid’s expenses in behalf of the dependent, but it will only apply to expenses incurred after the ABLE account was started.
So Who Can Qualify?
If your child is currently receiving SSI or SSDI benefits, then they might be eligible to benefit from an ABLE account. Otherwise, an individual who is blind or has a physical and mental impairment results in functional limitations for over a year. Individuals suffering with a chronic lifetime disability would also qualify. Keep in mind that depending on your state, you may need to furnish documentation of your child’s diagnosis or an affidavit stating the diagnosis and any functional limitations.
While there is no specific age requirement for the account to be set up, the individual must have become have incurred their disability prior to their 26th birthday. Older taxpayers who are disabled in their retirement would not qualify.
Benefits of an ABLE Account
College savings accounts, referred to 529 accounts, have served as the model for ABLE accounts. Here are just a few of the benefits of using these accounts:
For those with disabled dependents, this account creates a nest egg for their future. However, parents and family members should be sure to check with their tax professionals or accountant prior to setting it up to be sure that you are maximizing your tax benefits.
Click on the link below to contact a tax professional or accountant at the offices of Tax Alternative Group, LLC in Poughkeepsie, NY, to discuss your eligibility for an ABLE account, as well as any specific state regulations that may apply to your circumstances.
Patrick O'Hara, EA