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Progress on Implementing ABLE Accounts for People with Disabilities

The Internal Revenue Service issued proposed rules on June 19, 2015 to implement the new ABLE accounts for individuals who became disabled before age 26. ABLE accounts, also called 529A accounts, allow these individuals to save money for disability-related expenses without losing public benefits.

In March, Virginia became the first state to enact legislation to allow families to create accounts similar to college savings plans for individuals with disabilities. The program will be administered by the Virginia529 program, which currently operates college savings plans. Some key decisions, such as how to document onset of disability and how frequently to recertify disability, will be made by the program. Virginia529 hopes to begin enrollment in ABLE accounts early in 2016. Maryland enacted legislation in April to implement the Maryland ABLE Program.

ABLE accounts grow tax-free, and the income is not taxed or penalized on distribution if used for qualified disability expenses. An individual may only have one ABLE account and it must be in their state of residence. Anyone can contribute to ABLE account on behalf of a disabled individual, but total contributions must be less than the annual exclusion amount for gift taxes (currently $14,000.)

There are limitations to ABLE accounts. They are not available to the millions of people who become disabled after age 26. Any funds remaining in the account at the beneficiary's death, or if the beneficiary is no longer disabled, must reimburse Medicaid expenditures made on behalf of the beneficiary. For that reason, a third party special needs trust is still important if family members want to make gifts to an individual with disabilities.

Read more about ABLE accounts here or call Jean Galloway Ball or Loretta Morris Williams to learn how ABLE accounts fit into special needs planning for your family.