NC ABLE Accounts
First, what is ABLE, and what are ABLE Accounts?
The Achieving a Better Life Experience (ABLE) Act authorized states to establish tax-advantaged savings programs for individuals with disabilities.
Internal Revenue Code Section 529a, https://www.law.cornell.edu/uscode/text/26/529A, allows States to establish ABLE Accounts. As 529 accounts are for education, 529a accounts are for persons with disabilities.
These accounts allow a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for such taxable year, to an ABLE account which is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
Eligible individuals are individuals who qualify under Section 529a Which is both broader and narrower than the eligibility criteria used for other federally-authorized disability programs. Eligibility is broader in two principal respects: (1) there is no means-testing or requirement of prior work history and (2) the disabled individual does not need to prove inability to engage in any “substantial gainful activity.” ABLE account eligibility is narrower in that, no matter how disabled the individual may be, the disability must have occurred before the individual reached age 26.
While the disability has to have occurred before the individual reached the age of 26, the establishment of the account can be done at any time.
Eligibility can be based upon either Social Security Act Disability Benefits or the more liberal Disability Certification. If based upon Disability Certification, a person can establish and contribute to an ABLE account if s/he or his or her parent or guardian files with the federal government a certification that the individual meets the “severe functional limitation” test, or is blind as defined under the Social Security Act, and that such disability or blindness occurred before age 26. Such certification must be accompanied by a diagnosis of the applicable disability signed by a qualified physician.
An individual who is employed or employable may be eligible for an ABLE account although ineligible for SSI or SSDI disability benefits. Likewise, the absence of financial need or a work-related earnings history, which would be disqualifying for SSI or SSDI disability benefits, does not affect ABLE account eligibility under the certification method.
There are three (3) limitations on the size of an ABLE account: (i) an annual aggregate contribution limit equal to the annual gift tax inclusion; (ii) a $100,000 limit on the ABLE account balance; and (iii) a limit on further contributions to an ABLE account that would cause the account balance to exceed the analogous limit on Section 529 college savings.
Qualified Disability Expenses
Pursuant to 26 USC § 529A(e)(5), “qualified disability expenses” means any expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary, including the following expenses: education, housing, transportation, employment training, and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.
Drawbacks to ABLE Accounts
While an ABLE account is great for eliminating the tax associated with the earnings on the principle in these accounts, they do not provide some of the protection that is associated with a Special Needs Trust. In addition, any amounts remaining in the account upon the death of the account holder can be subject to recovery by the State for benefits paid.
For more information on Special Needs Planning, go to https://oakcityestateplanning.com/special-needs-planning/