Do ABLE accounts really help?
Last December, President Obama signed into law the Achieving a Better Life Experience聽. ABLE looks a lot like a state-run 529 college savings plan, but for individuals diagnosed with disabilities before age 26. Family and friends can contribute up to $14,000 annually in after-tax income without triggering the gift tax, and beneficiaries can make tax-free withdrawals for housing, transportation, assistive technology, home health aides, or other personal assistance.
Before its passage, my TPC colleague Howard聽聽ABLE accounts were the right financial solution for people with disabilities. At the time, my gut said 鈥淵es!鈥�
My gut, admittedly, is biased. I have a seven-year-old niece in Wisconsin who is not only adorable and in the second grade, but also has Down syndrome. Now, the Tax Hound in me wonders whether the law would be of much use to her鈥攐r most people with disabilities.
Family and friends聽聽can deduct contributions to my niece鈥檚 ABLE account on their Wisconsin state income tax returns. That鈥檚 a nice tax shelter. But for my brother and his wife who are upper middle-income earners, an ABLE account is especially nice because it generally doesn鈥檛 count in the 鈥渁sset test鈥� that their daughter has to pass in order to qualify for Medicaid or Supplemental Security Income (SSI).
But there鈥檚 a catch.
My brother and sister-in-law learned years ago that in order for their daughter to continue to receive Medicaid, and in the future, SSI, they need to keep her, in the words of their attorney, 鈥渋n a state of poverty.鈥� My niece cannot have more than $2,000 in her own name. ABLE provides an exception to that rule, up to a point.
Imagine my brother and his wife open an ABLE account for their daughter in 2016, when Wisconsin is ready to offer them. My niece鈥檚 large circle of family and friends can contribute up to the $14,000 annual limit and happily watch her account grow. (It can鈥檛 grow past $425,000, just like the state鈥檚聽.)
As an adult, my niece would be able to withdraw from her account and perhaps live independently. This is vital, since many children with developmental disabilities will eventually outlive their parents.
Here鈥檚 the catch: There鈥檚 a good chance that by the time she reaches 18 the value of her account will exceed $102,000. If her nest egg tops that amount, the state would suspend her SSI benefits until her account fell below that threshold. In 2016, the maximum federal monthly benefit for an individual will be $733. The state of Wisconsin supplements that with an additional $84.
An account of $102,000 seems like a lot. But if that amount is turned into an annuity, it would pay out only a few hundred dollars a month (assuming a 50-year payout and current interest rates). That won鈥檛 pay for much personal assistance. My niece is doing well, but it鈥檚 too early to tell what kind of job she might be able to secure when she鈥檚 an adult. An extra $800 in SSI would really help.
As I explained this to my brother and his wife, they were in a word, gobsmacked. To them, it seems the program is less about being 鈥渁ble鈥� to plan for their daughter鈥檚 future and more about spending down assets to maintain her SSI eligibility.
They were, in another word, resigned. My sister-in-law put it this way: 鈥淚t鈥檚 just another drop in the ocean of worry that keeps me up every night, wondering what will happen to her if and when we鈥檙e not here.鈥�
On the bright side: My niece would still get Medicaid, which she has been receiving since she was six months old. With ABLE, there鈥檇 also be a 鈥�.鈥� Imagine my niece passes away unexpectedly at age 49. Wisconsin would recoup any Medicaid expenses incurred after her ABLE account opened鈥攐ver 40 years鈥� worth鈥攆rom any remaining funds in the account.
Assuming the money stays in Medicaid, my niece鈥檚 account balance would help others in need, which is without a doubt a very good thing. Whatever was left over would go to my niece鈥檚 designated beneficiaries (her two younger sisters, who would pay ordinary income tax on any investment returns).
The truth is, my niece is one of the lucky ones. She has friends and relatives with the financial resources to contribute to her ABLE account in the first place.
What about the children with developmental disabilities who don鈥檛? And what of adults who become disabled after age 26, and are thus ineligible for the ABLE program?
Last year, Howard worried that ABLE might end up more of a tax shelter for wealthier families of individuals with disabilities. He hoped that Congress didn鈥檛 think ABLE was a complete solution to the financial problems of families like my niece鈥檚. I worry, too.
Will Congress eventually do more to help people with disabilities achieve the best possible life experience? Well, my niece鈥檚 name is Asha and her name means 鈥渉ope.鈥� It springs eternal.
This article first appeared at
