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New Financial Planning Tool - Able Accounts

To the relief of many families, the Achieving a Better Life Experience (ABLE) Act is to be implemented soon in Texas.

The federal ABLE Act was passed in December 2014 as a part of the Tax Extenders Act, and was amended via H. R. 2029, the Consolidated Appropriations Act of 2016 to amend the Internal Revenue Code. Texas passed its version of the ABLE Act, S.B. 1664, in June 2015.

Similar to 529 bank accounts, the accounts created under the ABLE Act allow for the saving of money to support individuals with disabilities to maintain their health, independence, and quality of life. Contributions to ABLE accounts are made on an after-tax basis and earnings will be tax-exempt. In Texas, eligible individuals can have only one account, and there are no restrictions as to who can contribute to the ABLE account. The maximum annual contribution by the beneficiary, family and friends is $14,000.00. Once the ABLE account exceeds $100,000.00, the beneficiary’s Supplemental Security Income and other means-tested benefits could be suspended.

If managed properly, the funds in the ABLE accounts will not compromise eligibility for government benefits. The Internal Revenue Code, Section 529A (e)(5) lists qualified disability expenses that include legal fees, housing, education, transportation, health, prevention and wellness, financial management and administrative services, and funeral and burial expenses. A well-focused evaluation of the payment of expenses out of an ABLE account coordinated with the rules of the Social Security Administration for SSI and Medicaid should be conducted by an experienced professional to avoid suspension or disqualification of benefits.

Contributors to an ABLE account should be aware of the Act’s payback provision. As with certain Special Needs Trusts, state Medicaid agencies are treated as creditors and are allowed to seek, from the account funds, reimbursement for the Medicaid services the account’s beneficiary has received since the establishment of his or her ABLE account. Any funds remaining after the reimbursement can be distributed to heirs.

The office of Texas Comptroller Glenn Hegar is to administer the Texas ABLE Program though the Texas Prepaid Higher Education Tuition Board, however, the program is not open for enrollment.

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