What is the ABLE Act?

What is the ABLE Act?

Known as the “Achieving a Better Life Experience Act of 2014,” the ABLE Act, which created IRC Section 529A, was signed into law with bipartisan political support. It’s stated intent:

“(1) To encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life . . . [and]

(2) To provide secure funding for disability-related expenses on behalf of designated beneficiaries that will supplement, but not supplant, . . . ” federal benefit programs including SSI, Medicaid, and other federal sources.

The ABLE Act authorized States or State agencies or instrumentalities to establish and maintain qualified ABLE programs through which contributions may be made to the account of an eligible disabled individual to meet his or her qualified disability expenses. 49 states and the District of Columbia now have ABLE legislation. As of December 31, 2018, there were 34,707 ABLE accounts in existence with $171,692,577 under management.

The ABLE Act allows annual deposits into an ABLE account of an amount equal to the gift tax exclusion under IRC § 2504(b) ($15,000 in 2018) and accumulations to $100,000 for SSI and for Medicaid, to a state’s limit for aggregate contributions under its IRC Section 529 Qualified State Tuition Program, which is an amount in excess of $400,000 in many states.

The Tax Cuts and Jobs Act amended and improved the ABLE Act by allowing the transfer of funds from a 529 education plan to an ABLE account, as long as the maximum contribution from all sources does not exceed the annual $15,000 limit. A second amendment gives an ABLE account owner who works the right to contribute up to $12,060 in earnings above the $15,000 annual limit. A third amendment allows ABLE account owners who contribute to their accounts to take advantage of the Retirement Savings Contribution Credit.

Additional legislation improvements continue to be proposed at both the federal and state levels. For example, the proposed federal ABLE Age Adjustment Act (S. 651/H.R. 1814) would amend Section 529A(e) of the Internal Revenue Code to increase the eligibility threshold for ABLE accounts for onset of disability from prior to age 26 to prior to age 46.

Subject to the direct payment caveat explained in this related Chronicle article, the ABLE Act together with the state ABLE programs now offer settlement and judgment payees an important new solution for saving and accumulating money while preserving eligibility for needs-based government benefits and allowing direct access by the beneficiary that is particularly appropriate for structured settlements.

For additional information, see this Knowledge Network article about ABLE Accounts.