Tag: New Jersey ABLE Plan

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

On By Jane Fearn-Zimmer, Esq.In ABLE accounts, Caregivers Resources, Elder LawLeave a comment

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 an Elder and Disability Law, Taxation, and Trusts and Estates attorney. 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.

New Jersey ABLE Program Offers a New Savings Option for the Disabled

On By Jane Fearn-Zimmer, Esq.In Disability Law1 Comment

ABLE Program in New JerseyEarlier this month, New Jersey joined the list of states with an ABLE Plan. An ABLE account is a special tax-favored disability savings account designed to help individuals living with a severe disability save and manage their own funds, while protecting their SSI, Medicaid and DDD eligibility.  The account can only be opened in connection with a state ABLE Program. Information regarding the NJ ABLE Program is available online. ABLE accounts are important because they provide a competent disabled individual with an option to preserve their continued eligibility for Medicaid, SSI, SNAP, Section 8 housing assistance, DDD services and other benefits, while saving and investing funds in the account, which they can use to pay for qualified disability expenses.

In 2018, up to $15,000 annually from parents, grandparents, the disabled individual, or anyone else, may be deposited into an ABLE account for a qualifying disabled person. Disabled beneficiaries with their own ABLE account may now fund an ABLE account from their own earnings, as long as they do not participate in an employer’s retirement plan. Alternatively, an ABLE account could be funded through a tax-free rollover of up to $15,000 in funds held in an educational savings section 529 plan. For the rollover to be tax-free, the ABLE account must be either for the same beneficiary of the section 529 plan or for a family member of that individual. If more than $15,000 in funds held in an educational savings plan is rolled over into an ABLE account plan in the same taxable year, the excess over the $15,000 limit is treated as an excess contribution, subject to a safe harbor provision. The ABLE provisions of the Tax Cuts and Jobs Act of 2017 expire on December 31, 2025.

While in the ABLE account, the funds are invested, similarly to funds invested in a 529 educational savings account. The competent, disabled individual can withdraw funds as needed from the ABLE account, at which time, any investment return on the original proceeds would be includible in the gross income of the account beneficiary (i.e., the disabled individual). See IRC § 529A(c)(1)(A). The account earnings and the original return of principal, once withdrawn from the ABLE account, are includible in determining the income of the disabled account beneficiary for the month in question and generally are taken into account in determining the individual’s Medicaid eligibility and SSI eligibility.

However, the funds would not be taken into account for Medicaid eligibility purposes, to the extent that they are offset by any qualified disability expenses incurred by the beneficiary during the taxable year in question. See I.R.C. § 529A(c)(1)(B). That means that funds may be distributed out of the ABLE account directly for a disabled individual, as long as the distribution proceeds are used to pay for qualified disability expenses during the same calendar year. The beauty of an ABLE account is that for income tax and public benefits purposes, the distributions from ABLE accounts are generally excluded from a qualifying disabled beneficiary’s income so long as the distribution proceeds are used for qualifying disability expenses. The definition of qualifying disability expenses is very broad and may include expenses for housing, education, transportation, employment training and support and assistive technology, even if the disabled individual receives SSI.

If the balance on deposit in an ABLE account increase to exceed the sum of $100,000, the disabled beneficiary will lose any eligibility for SSI until the ABLE account proceeds are spent down below the $100,000 limit; however, the funds in the ABLE account will remain an exempt resource for Medicaid.

Upon the death of a disabled beneficiary, any state paying Medicaid benefits during the disabled beneficiary’s lifetime will have a Medicaid lien on the account proceeds. If there are funds remaining in the account after the payment of the Medicaid lien, the account balance may be disbursed to the estate of the disabled beneficiary.

An ABLE account may be an option where there is a qualified disabled beneficiary, whose disability was incurred (and documented) prior to age 26.

For qualified disabled individuals, an ABLE account may also be a good way to “spend down” proceeds from an UTMA or UGMA.

Once opened, an ABLE account is generally portable if the beneficiary moves to another state. State ABLE plans may offer different features and attributes, such as debit cards, online account access, checking accounts, and a range of investment options, such as mutual funds, exchange traded funds, and interest bearing bank accounts.

Questions? Let Jane know.