Becoming informed about the ABLE Act

1. The ABLE Act

2. Disclaimer
The following information is provided to our
members from the best resources/information
we had available and for their benefit, but
without warranty on the information provided
herein. UAF encourages each everyone
viewing this information to learn examine other
publicly available resources and information. If
you find anything within this document that is
inaccurate or misleading, please email us at
info@unitedangelsfoundation.org

3. The ABLE Account Act of 2009 H.R
1205 and S.493
Achieving a
Better
Life
Experience

4. What is an ABLE
Account?

5. Overview of ABLE Accounts
• An ABLE Account is an account established by or
on behalf of an individual with a disability for the
purpose of saving for life’s necessities, many of
which Medicaid does not cover.
• The assets in an ABLE Account can only be used to pay
for qualified expenses, such as
education, housing, employment
support, health, transportation, and other life necessities.
• The income earned on amounts contributed to an ABLE
Account is tax exempt, so ABLE Accounts grow tax free.
• The assets held in an ABLE Account are not counted for
purposes of determining the individual’s eligibility to
qualify for Medicaid and Supplemental Security Income.

6. The Need for Able
Accounts

7. Various Programs Encourage
Americans to Save
• The federal government encourages Americans to
save with a variety of tax-advantaged savings
accounts.
– Individual Retirement Accounts: including
traditional, Roth, and nondeductible IRAs
– Education Savings Accounts: Section 529 Qualified
Tuition Plans, Coverdell Education Savings Accounts
– Medical Savings Accounts: Archer Medical Savings
Accounts, Health Savings Accounts
– Employer Savings Accounts: 401(k) plans, SIMPLE
401(k) plans, Thrift plans, charitable 403(b) plans,
governmental 457 plans

8. Case Studies
• The following slides show how individuals
with disabilities would benefit from ABLE
Accounts.

9. Amy and Jack

10. What would YOU do with an ABLE
Account?
• Amy and Jack are brother and sister. They live
outside of Boston with their parents.
• When Amy was born, her parents opened a
§529 account to save for her college education.
• Three years later, when Jack was born they
opened a §529 account for him as well.
• Jack is eventually diagnosed with autism
spectrum disorder. His disability requires
intensive support at home and in the community.

11. What would YOU do with an ABLE
Account? (cont.)
• How would Amy and Jack’s family utilize an
ABLE Account?
– Money that Jack’s parents have been saving in his §529 plan
can be transferred to his ABLE account.
– Because of the severity of his disability, Jack will need support
for the remainder of his life. Funds set aside in the ABLE
account will provide financial support to Jack for housing,
transportation, general living expenses and medical care. Just
like his sister Amy’s §529 plan, the growth on his ABLE account
funds will not be taxed.
– Jack’s sister Amy can go to college, live her life, enjoy her
brother and not worry about being his sole source of private
financial support after their parents are gone.

12. Aaron and Julia

13. What would YOU Do with an ABLE
Account?
• Aaron and Julia both have down syndrome. Aaron is 37,
and Julia is 35 years old. They are engaged.
• Aaron and Julia live in Santa Rosa, CA, in an apartment
building for individuals with special needs.
• Aaron and Julia have worked in a variety of sheltered
environments for individuals with special needs,
including a local coffee shop, a recycling plant, and a
workshop where they help assemble American flags.
• Medicaid/SSI provide Aaron and Julia with in home care
support assistants who help them get to work, go to the
doctor, cook and clean, and attend educational and
social activities.

14. What would YOU do with an ABLE
Account? (cont.)
• How would Aaron and Julia use the money in an ABLE
Account? [Note: each state’s Medicaid program varies
as to what expenses it covers.]
– Go to the dentist. California’s Medicaid program covers one
teeth cleaning a year, but dentists recommend getting two
cleanings. CA Medicaid also doesn’t pay for dental crowns.
– Join a health club. CA Medicaid doesn’t cover exercise or
other preventative health programs.
– Get a hearing aid. CA Medicaid doesn’t cover hearing aids for
the partially hearing impaired.
– Replace a pair of lost glasses. CA Medicaid’s vision benefits
are very limited.
– Go on a honeymoon. CA Medicaid/SSI does not allow
individuals with disabilities to save enough money to take a
vacation.

15. Technical
Specifications of
ABLE Accounts

16. ABLE Account Eligibility
• An ABLE Account may be established for or
by any individual with a disability, including:
– An individual who has received a determination
that he or she is eligible to receive SSI or OASDI
disability benefits due to blindness or disability
under Titles XVI or II of the Social Security Act.
– An individual who would be eligible under the
above test, notwithstanding:
• The fact that no determination has been made with
respect to his or her eligibility to receive these benefits;
and
• The fact that the individual would otherwise fail the
income and assets test or the substantial gainful activity
test.

17. Establishing Eligibility
• Unlike the cumbersome process for establishing eligibility for
SSI or OASDI disability benefits with the Social Security
Administration, an ABLE Account would be established by
filling out a tax form.
• The U.S. income tax is a self-enforcement system. Taxpayers
routinely certify their income, deductions, credits and tax
status under penalties of perjury.
– For example, to obtain the disabled tax credit, taxpayers
file Schedule 3 of the Form 1040-A and file a doctor’s
certification. The same procedure could be used to
establish an ABLE Account.
• To establish eligibility for an ABLE Account, the tax form would
include a statement certified by a doctor that the individual
has a disability at a level that would make him or her eligible
under the SSI or OASDI disability programs notwithstanding
the means tests or substantial gainful activity test.

18. Opening an ABLE Account
• An ABLE Account is a custodial account or trust created or
organized in the United States whose beneficiary is an
individual meeting the eligibility requirements.
– Typically, ABLE Accounts would be custodial accounts held at
national banks and would be as easy to open as an ordinary
savings account.
• A custodial account is a contract in which a bank agrees to hold and
invest funds on behalf of a third party, such as a minor or individual with
a disability. The custodian of a custodial account is authorized to make
decisions about the account if the beneficiary of the account is unable
– If the ABLE Account is a trust rather than a custodial account, the
trustee can be a bank, a parent or guardian of the designated
beneficiary, the beneficiary him- or herself (provided the
beneficiary is capable of fulfilling that role), or a third-party
appointed by the beneficiary (or his or her parents).

19. Qualified Expenses
• ―Qualified disability expenses‖ are any expenses that are
made for the benefit of the beneficiary of the ABLE
Account, to the extent provided under Treasury
Regulations. Such expenses will include:
– Education—including tuition for preschool thru post-
secondary education, books, supplies, and educational
materials related to such education, tutors, and special
education services.
– Housing—including rent, mortgage payments, home
improvements and modifications, maintenance and
repairs, real property taxes, and utility charges.
– Employment Support—including expenses related to
obtaining and maintaining employment, including job-related
training, assistive technology, and personal assistance
supports.

20. Qualified Expenses (cont.)
– Health—including premiums for health insurance, medical,
vision, and dental expenses, habilitation and rehabilitation
services, durable medical equipment, therapy, respite care,
long term services and supports, and nutritional management.
– Transportation—including the use of mass transit, the
purchase or modification of vehicles, and moving expenses.
– Other Life Necessities—including clothing, activities which
are religious, cultural, or recreational, supplies and equipment
for personal care, community-based supports, communication
services and devices, adaptive equipment, assistive
technology, personal assistance supports, financial
management and administrative services, expenses for
oversight, monitoring, or advocacy, funeral and burial
expenses.

21. Contributions to ABLE Accounts
• Contribution Cap.
– Individuals with a disability, their families, their
employers, and any other person wishing to
contribute assets for the individual with a
disability, may contribute up to $500,000 to an ABLE
Account for that individual until the individual reaches
the age of 65.
– The cap is adjusted for inflation annually.
– Once the cap has been reached, the ABLE Account
cannot receive additional contributions, but the assets
in the ABLE Account may continue to grow.
• Any excess contributions (and earnings attributable to them)
would be subject to a six percent excise tax.

22. Tax Deductions for Contributions
• The beneficiary of an ABLE Account would be
eligible for a tax deduction equal to 50% of
his or her annual contributions to the account.
– The deduction is capped at $2,000 per year.
– The deduction is also subject to a phase-out at
higher income levels ($35,000 for
individuals, $52,500 for heads of household, and
$70,000 for joint filers).
• Other contributors to the ABLE Account are
not entitled to a tax deduction for contribution
to the account.

23. Tax Treatments of ABLE Accounts
• The earnings of the assets held in an ABLE Account
are not subject to federal income tax while they remain
in the Account.
• Withdrawals from an ABLE Account are tax-free to the
extent that those funds are used to pay the
beneficiary’s ―qualified disability expenses.‖
• Withdrawals from an ABLE Account that are not for
qualified expenses are taxable to the beneficiary.
– Specifically, if the annual withdrawal from an ABLE
Account exceeds the beneficiary’s annual qualified
disability expenses, a portion of the withdrawal is subject
to income tax plus an additional 10% excise tax.
– The taxable portion of the withdrawal represents the
interest earned on assets in the ABLE Account.

24. Rollovers
• Certain IRAs, Health Savings Accounts, and Education
Savings Accounts may make rollover distributions to
ABLE Accounts without incurring penalties.
• The assets of one ABLE Account may be rolled over to
another ABLE Account for the benefit of the same
beneficiary (or his or her disabled family members)
without tax.
– The rollover amount must be deposited into the new ABLE
Account 60 days after it is distributed.
– The designated beneficiary of an ABLE Account may be
changed without incurring tax, provided that the new
beneficiary is a member of the earlier beneficiary’s family
and meets the eligibility requirements.

25. Gift Tax Treatment of Contributions
• A contribution made to an ABLE Account
on behalf of a designated beneficiary is
considered to be a completed gift, which is
eligible for the annual gift tax exclusion.
• If the donor’s contributions in a particular
year exceed the amount of the gift tax
annual exclusion, the donor may elect to
spread the contribution over a five-year
period for gift tax purposes.

26. Medicaid Payback
• In the event the qualified beneficiary dies (or
ceases to be an individual with a disability):
– The assets in the ABLE Account are first distributed to
any State Medicaid plan that provided medical
assistance to the designated beneficiary.
– The amount of any such Medicaid payback is
calculated based on amounts paid by Medicaid after
the creation of the ABLE Account.
• After the Medicaid payback, any remaining assets
in the ABLE Account would be distributed pursuant
to the beneficiary’s estate and a portion of such
amounts would be subject to tax.

27. Other Financial Planning Vehicles
• ABLE Accounts are not intended to replace special
needs trusts (individual or pooled) as an option for
financial planning. ABLE Accounts provide an
alternative to special needs trusts and could be
utilized by a lower-income demographic.
• Like ABLE Accounts, the assets held in individual
or pooled special needs trusts can be exempt from
the Medicaid/SSI means tests.
• Unlike ABLE Accounts, individual or pooled special
needs trusts are not subject to a contribution
cap, so they can be unlimited in size.

28. Other Financial Planning Vehicles
(cont.)
• Unlike ABLE Accounts, which are tax-exempt,
individual or pooled special needs trusts are taxable
trusts.
– Special needs trusts pay tax at the highest marginal
tax rate (e.g., 35%). They also can be expensive to
set up and to administer, and they are not easily
portable to states outside the state of their creation.
– Unlike ABLE Accounts, those individual or pooled
special needs trusts that are ―third party‖ trusts,
meaning the assets of the trust do not belong to the
disabled beneficiary, and therefore are not subject
to Medicaid payback provisions.

29. Sponsors

30. ABLE Accounts:
A Bipartisan, Bicameral Initiative
• The following Representatives introduced H.R. 1205 in the
House of Representatives:
– Crenshaw (R-FL),
– Meek (D-FL),
– Kennedy (D-RI), and
– McMorris Rodgers (R-WA)
• The following Senators introduced S. 493 in the Senate:
– Casey (D-PA),
– Hatch (R-UT),
– Dodd (D-CT),
– Brownback (R-KS),
– Burr (R-NC), and
– Kennedy (D-MA).

31. Organizations Supporting
the ABLE Act
• APSE • Easter Seals
• The Arc of the United States • National Association of Councils on
• Association of University Centers on Developmental Disabilities
Disabilities (AUCD) • National Association of State
• Autism Society of America Directors of Developmental
• Autism Speaks Disabilities Services (NASDDDS)
• Center for Outcome Analysis • National Fragile X Foundation
• Center for Self-Determination • National Disability Institute
• Consortium for Citizens with • National Down Syndrome Congress
Disabilities Asset Development Task • National Down Syndrome Society
Force • TASH
• Collaboration to Promote Self- • TecAccess
Determination • United Cerebral Palsy
• Down Syndrome Association of • World Institute on Disability
Northern Virginia

32. Contact Information
• For more information, please contact:
– Senator Casey’s office: Bryn McDonough, 202-224-6324
– Congressman Crenshaw’s office: Dustin Krasny, 202-225-2501