ABLE accounts are about to become an even better option for people with disabilities, according to federal authorities at the Internal Revenue Service. On January 1, 2018, people with special needs will be able to contribute an annual total of $15,000 to the tax-advantaged savings accounts.
Structured to preserve eligibility for government benefits, ABLE accounts help thousands of people with disabilities save money every year. The previous annual limit on contributions was set at $14,000.
ABLE Accounts Increase To $15,000 Limit
ABLE accounts are currently offered through programs in 28 states, Disability Scoop reports. Most of these programs are open to out-of-state investors, so you don’t need to live in a state to apply for an account there. Created by the Achieving a Better Life Experience Act (ABLE), a federal law passed in 2014, ABLE accounts allow people with disabilities to invest their savings without threatening means-tested government benefits.
Programs like Medicaid and Supplemental Security Income (SSI) are usually cut off when beneficiaries hold over $2,000 of “countable resources.” That includes both cash and assets that can easily be converted into cash, like stocks or bonds.
The problem with the current arrangement should be obvious. A staggering 2.2% of the American population currently receives SSI due primarily to a disability, according to the Kaiser Family Foundation. For the vast majority of these recipients, government benefits are critical to sustaining a basic quality-of-life. At the same time, our nation’s welfare system actively discourages millions of people from saving for the future, by tying their necessary benefits to arbitrary resource limits.
ABLE Allows People With Disabilities To Save Money
ABLE accounts were designed to solve this problem, at least in part. Open an account through a state-managed program and you can invest money (usually up to $300,000) today. The first $100,000 deposited into an ABLE account isn’t counted as personal assets. As such, that money is completely separate from the eligibility determinations handed down for Medicaid, SSI or housing benefits.
Even better, any earnings made on the investments go untaxed, so long as money drawn from the account is used only to purchase “qualified disability expenses,” including medical care, job training programs, assistive devices and accessible transportation.
As it stands, federal law opens ABLE accounts up to anyone who became blind or developed an eligible disability before the age of 26.
Federal Law Ties Contribution Limit To Gift Tax Exemption
Now, people with special needs will be able to save more than ever.
The limit on ABLE investments, in line with the Achieving a Better Life Experience Act, is tied to the federal gift tax exclusion, which limits the amount of money people can give to others before those gifts are taxed. Likewise, the gift exclusion itself is pegged to inflation, the amount of value a dollar loses as the price of goods and services goes up.
In effect, the limit on ABLE investing is also pegged to inflation. And since the federal gift tax exclusion was just raised from $14,000 to $15,000, the limit for ABLE accounts is going up, too.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).