ABLE Accounts for Individuals with Disabilities

ABLE Accounts for Individuals with Disabilities

At JFS we help people navigate tough financial situations so that they can achieve the best possible outcome for themselves and their loved ones.  However, achieving such outcomes often comes with complications, especially when providing for an Individual with special needs.  In addition to the obvious emotional concerns for a loved one facing the challenges of a life with special needs, financial considerations can also present hurdles. For example, care must be taken when providing money for a disabled person to avoid disqualifying the person for Supplemental Security Income (SSI), since the government places a $2,000 limit on assets held by an individual seeking SSI. Similar limits apply to persons trying to qualify for Medicaid, the government’s healthcare program for low-income persons.

Because of these limitations, it used to be assumed that there was no way to save money for an individual with special needs without interfering with their SSI eligibility and without pursuing the sometimes lengthy, expensive, and difficult process of setting up a Special Needs Trust (SNT). SNTs can certainly permit money to be set aside for a disabled individual, but access is limited and involves several requirements: the trust beneficiary must be under the age of 65, and no more contributions can be made to the trust after they turn 65.  Because it involves the drafting of legal documents, the creation of an SNT is not free, and the ongoing management includes fees since the assets in the trust require oversight. Fee amounts will depend on who is managing the trust. Furthermore, the fund manager may impose a minimum amount requirement that could create challenges, depending on the level of assets the donor has available. Finally, Medicaid can take all remaining funds from the SNT upon the death of the special needs individual if they deem it appropriate.

Legislation passed in 2014, the Achieving a Better Life Experience (ABLE) Act, provided families a better way to provide for the long-term security of loved ones who are disabled or have other special needs. By setting up an ABLE account, it is possible to provide for their financial needs without disqualifying them for certain types of government assistance.  Each state administers its own ABLE program, and in this article, we want to highlight the benefits of the Pennsylvania ABLE Savings Program (PA ABLE).

PA ABLE accounts are in addition to government programs; they do not replace them. More importantly, they do not affect the special needs individual’s ability to receive federal needs-based assistance, including Medicaid. When determining the ability to receive SSI, the first $100,000 in the PA ABLE account does not count against the person’s eligibility. This includes their ability to receive health and disability-related benefits and also PA student aid.

Additionally, the PA ABLE program features favorable tax qualifications.  Growth in the account is free of both federal and Pennsylvania income taxes.  Also, withdrawals from the account do not incur taxation as long as they are used to cover a qualified disability expense. Finally, the entire account balance, including funds deposited and the growth of those funds, is exempt from Pennsylvania inheritance tax.  The account is also protected from creditors of the account owner, beneficiary, and contributor.

There are immediate benefits for those who are contributing to the PA ABLE Account on behalf of the special needs individual.  An individual can contribute up to $17,000 per year (2023) and those contributions can be deducted from income taxable by the state.

ABLE accounts are designed for flexibility and can be a very powerful tool when planning for the financial well-being of an individual with special needs.  There’s no “one-size-fits-all” solution when it comes to financial planning, which means that it is important to consult a Certified Financial Planner® to review your current situation. At JFS, we can help you determine if the ABLE PA program offers important advantages for your overall financial plan.


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