disibilityAs of April 3, 2017, individuals with qualifying disabilities in Pennsylvania will be able to open tax advantaged savings accounts known as ABLE accounts in order to save money for disability related expenses. Disabled individuals can use these accounts to pay for “qualified disability expenses” without being disqualified for other government benefits, such as SSI, food stamps, and Medicaid. The availability of such government benefits is otherwise limited to those individuals who have no more than $2,000 in cash or items of significant value.

Qualified disabled individuals are those who are entitled to SSI or SSDI because of blindness or a disability and the qualifying disability must have started before the individual attained the age of 26.

Qualified disability expenses include any expense incurred by the disabled individual as a result of living his or her life with a disability. This can include housing, education, transportation, assistive technology and personal support services, employment training and support, healthcare costs, and funeral and burial services. As long as the funds in the ABLE Account are used solely for these qualified disability expenses, the funds in the account can grow tax free and distributions are not subject to tax. If a distribution is made from an ABLE Account and the funds are not used for qualified disability expenses, the earnings portion of the distribution will be subject to tax and a 10% penalty.

No more than $14,000 can be contributed to a single ABLE account each year and a disabled individual cannot have more than one ABLE account. This amount will be adjusted annually for inflation. If a disabled individual’s family or friends want to make gifts to the disabled individuals, the gifts can be made directly to the ABLE account to avoid any issues with qualifications for government benefits. Once the account has more than $100,000 in funds, the disabled individual will become ineligible for government benefits, except for Medicaid, until the account balance has been reduced under $100,000. Furthermore, the maximum amount that can be held in an ABLE Account is $511,758; no further contributions can be made after that point but interest can accumulate on the account. At the death of the disabled individual, the funds in the account can be used to pay for funeral and burial expenses. Any remaining funds must be used to pay back Medicaid for benefits received by the disabled individual after the ABLE Account was established. Once that payback is complete, the funds can be distributed according to any designated beneficiaries or rolled over to other family members who are eligible to hold ABLE Accounts.

If you have questions about using an ABLE Account to help meet the needs of a disabled individual without losing government benefits, our experienced Philadelphia Estate Planning Attorney can help.