Getting the Most out of your ABLE Account Based on the SSA’s New Guidance

ABLE Program in New Jersey

The Social Security Administration released a new update to its Procedure Operations Manual System, (POMS), effective March 13, 2020.  This is a very important development because the POMS is the manual used by employees of the Social Security Administration in processing claims.  The new provision gives additional information about the types of expenses an ABLE account’s proceeds can be spent on, for a qualified, disabled beneficiary, while still retaining that beneficiary’s eligibility for Medicaid and other means-tested public benefits, like Supplemental Security Income (SSI), Section 8 housing benefit. Heating assistance (LIHEAP), and food stamps (Supplemental Nutritional Assistance Program (SNAP)).  In particular, the new guidance clarifies that food purchased with an ABLE account’s proceeds can be a qualified disability expense.

What is an ABLE account?  It’s a special, federal income tax qualified disability savings account, the balance of which is disregarded in computing eligibility for public benefits, so long as it remains below set levels.

Who can benefit from an ABLE account? Only a qualified disabled beneficiary can benefit from an ABLE account. A qualified disabled beneficiary is an individual who is eligible for Supplemental Security Income (SSI) on the basis of blindness or a disability, where the individual’s blindness or disability was incurred prior to the age of 26.  Another route to qualified disabled beneficiary status is entitlement to disability insurance benefits, childhood disability benefits, or a disabled widow or widower’s benefit on the basis of a serious, disabling condition that began prior to age 26.

Are there other exceptions to qualify for an ABLE account? An individual may be eligible for an ABLE account on the basis of a certification that the individual has a medically determinable impairment meeting the statutory criteria for a disability determination (i.e., marked and severe functional limitations) or is blind, and the blindness or disability was incurred prior to age 26.

Distributions can be made out of the account for certain qualified disability expenses. To the extent that the balance in the ABLE account:

  • Does not exceed the $100,000 SSI limit, and
  • Distributions are made in the same calendar year as they are used to purchase qualified disability expenses for the disabled beneficiary, the income from the qualified distributions may be offset by deductions for the qualified disability expenditures paid in that same calendar year.

It is important to note that if the qualified disabled beneficiary does not receive SSI, then he or she is not subject to the $100,000 SSI threshold, but the qualified disabled beneficiary must ensure that the funds in the ABLE account remain less than the 529 contribution amount for his or her state of residence.

What are the benefits of an ABLE account? The benefits of an ABLE account come with the quid pro quo that the funds on deposit in the ABLE account after the death of the disabled beneficiary and after the payment of all outstanding qualified disabled expenses will be subject to a Medicaid payback for all expenses incurred by the state (or states’) Medicaid agency on behalf of the disabled beneficiary after the date of establishment of the ABLE account.

* Please note that during the period of uncertainty due to the COVID-19 pandemic, there may be delays in communications and services from ABLE PLAN providers, due to remote work arrangement and contingency work plans. However, basic services and information should be available through online access.

What are qualified disability expenses? These may include:

  • Education
  • Housing
  • Transportation
  • Employment training
  • Assistive technology
  • Personal support services
  • Health, prevention and wellness
  • Financial management and administrative services
  • Legal fees
  • Expenses for oversight and monitoring
  • Funeral and burial expenses
  • NEW: the purchase of food is now considered a non-house related expense

Why is the new guidance important? While much of the new guidance reiterates settled rules, the new guidance is important because it clarifies that food may be purchased with funds from an ABLE account and such purchases will be treated as a non-shelter related qualified disability expense and disregarded for purposes of determining eligibility for the SSI (and other means-tested federal benefits).  The distribution from the ABLE account, to the extent used to purchase food, will not be considered in kind support and maintenance and therefore, will not place the individual in excess of the SSI income limit.  The ABLE account beneficiary will not be disqualified for the SSI benefit and will not suffer a reduction of the SSI benefit amount due to in kind support and maintenance.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

ABLE Savings Registry – The Gift that Keeps on Giving

ABLE Program in New JerseyABLE accounts are special, tax qualified disability savings vehicles for seriously disabled individuals, who had a qualifying disability incurred prior to age 26.  As long as the rules of the ABLE program are complied with, a seriously disabled individual can receive up to $15,000 (in 2019) in funds in an ABLE account without the funds being counted against him in determining the individual’s eligibility for public benefits, including Medicaid and Supplemental Security Income.

Favorable income tax provisions apply to protect the income earned on funds contributed to an ABLE account, as long as the contribution is not distributed out of the account, or if the contributions are distributed out of the ABLE account, any income is not subject to federal income tax to the extent that it is spent during the same calendar year for qualified disability related expenses.

Qualified disability expenses are expenses which relate to the account beneficiary’s blindness or disability and enhance his or her enjoyment of life as a result of the disability. Qualified disability expenses can encompass basic living expenses, transportation, education, assistive technology, legal expenses, medical care and education and training.

Here is a digital-age tip for parents, grandparents and gift-giving relatives of young adults who are eligible for an ABLE account and want to attend college. There is a new, web platform www.giftofcollege.com which can help make saving for college (while continuing to qualify for means-tested public benefits) easier than ever.  The new platform enables a disabled individual eligible to link their ABLE account to an online profile. Invitations to contribute funds can also be sent electronically.

For more disability savings strategies and resources, consult with an experienced special needs and disability lawyer.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.