President Barack Obama signed the Achieving a Better Life Experience, or ABLE, Act December 22nd, allowing those with disabilities to open tax-free savings accounts where they can save without fear of losing government benefits.
The new law will allow people with disabilities to open special accounts where they can save up to $100,000 without risking eligibility for Social Security and other government programs. What’s more, individuals can keep their Medicaid coverage no matter how much money is accrued in an ABLE account.
Like 529 college savings plans, any earned interest will be tax-free. Funds accrued in the accounts can be used to pay for education, health care, transportation, housing and other expenses.
To be eligible, individuals must have a condition that occurred before age 26 and each person may only open one ABLE account. Under current gift-tax limitations, as much as $14,000 could be deposited annually.
These plans will be set up similar to other 529 plans. That means that individual states must make regulations to allow ABLE plans to operate in each state. So although federal law permits these accounts, and many are expected to be available in 2015, it could be awhile before individuals find a plan in their particular state.
“We can’t mandate that a state will create a 529, but given the lobby that we’ve seen, I think by the end of next year, I think we’ll see this in every state,” Sen. Richard Burr, R-N.C., stated one of the bill’s sponsors.