Timothy J. Duckworth

Achieve a Better Life Experience with The Pennsylvania ABLE Savings Program

On April 18, 2016, Governor Wolf signed into law The Pennsylvania ABLE Act. This act provides for low-cost savings vehicles with tax advantages allowing individuals with disabilities to gain greater control over their finances while maintaining their disability benefits. While over twenty states offer some kind of ABLE program, Pennsylvania’s ABLE Savings Program is available nationwide, with additional benefits for in-state residents.

A PA ABLE Savings account can be opened by or for an eligible individual with contributions as little as $25. Contributions to an ABLE account can be put into any combination of seven investment options. Six are Asset-Allocation options with varying blends of stocks, bonds, and cash and ranging from conservative to aggressive. The seventh option is an FDIC-insured interest-bearing checking account. Each year an account may receive contributions up to the annual gift tax exclusionary amount ($14,000 in 2017) up to a maximum value of $511,758 (in 2017). Finally, any person (including the eligible individual, friends, and family members), business, employer, trust, or other legal entity can contribute to an account.

Who Qualifies?

Any individual entitled to disability benefits under Title II (Social Security Disability Insurance) or Title XVI (Supplemental Security Income) of the Social Security Act based on a disability that began before his or her 26th birthday is eligible for an ABLE account. You do not need to be receiving these disability benefits to qualify. Rather, you just need to be entitled to such benefits.

Another way to be eligible for an ABLE account is to self-certify that you have a similarly severe disability that began before your 26th birthday. By self-certifying, you are indicating that you are blind, within the meaning of the Social Security Act, or have a medically-determinable physical or mental impairment which results in marked and severe functional limitations, and has lasted or is expected to last 12 continuous months or result in death. Additionally, you must have a written diagnosis related to your disability, signed by a physician meeting Social Security Act criteria.

What Are the Benefits

There are a variety of government benefits that go along with an ABLE account, including:

  1. Supplemental Security Income (“SSI”) benefits are only affected in two scenarios. The first is when the value of an ABLE account exceeds $100,000. Any amount in excess of $100,000 in an ABLE account will be counted towards the SSI resource limit (currently $2,000). The second scenario is if funds are withdrawn for housing or Non-Qualified Expenses and the money is not spent within the same month as the withdrawal.
  2. Medical Assistance (“Medicaid”) is not affected by money in an ABLE account. In fact, ABLE account balances are disregarded when determining Medicaid eligibility.
  3. ABLE accounts also receive tax deferral and tax exemption benefits. Account owners will owe zero federal or Pennsylvania income tax on growth when held in the account. In addition, withdrawals for qualified disability expenses are not subject to federal or Pennsylvania income tax. Further, the entire account is exempt from PA’s inheritance tax.

What Is a Qualified Expense?

In order to receive the benefits of an ABLE account, funds in the account must be used for “qualified disability expenses.” However, the IRS has indicated that the term “qualified disability expenses” is to be broadly construed to permit the inclusion of basic living expenses and not limited to medical necessity. In addition, the federal ABLE act has outlined 11 broad categories included in “qualified disability expenses”:

  1. Education
  2. Housing
  3. Transportation
  4. Employment Training and Support
  5. Assistive Technology and Personal Support Services
  6. Health
  7. Prevention and Wellness
  8. Financial Management and Administrative Services
  9. Legal Fees
  10. Expenses for Oversight and Monitoring
  11. Funeral and Burial Expenses

This list is by no means exhaustive. Any other expenses related to an eligible individual’s disability and made for the benefit of such eligible individual will likely be considered qualified.

What if I Use Funds for Non-Qualified Expenses?

You may choose to use funds in your ABLE account for non-qualified expenses. If you do, you should be aware of the potential tax liabilities. First, the earnings portion of withdrawals for non-qualified expenses is subject to federal income tax and an additional 10% penalty. Additionally, the earnings portion of withdrawals for non-qualified expenses is subject to Pennsylvania income taxes.

It is important to note that although PA ABLE does not require you to submit documentation to prove you are using your account for qualified expenses, you should still keep records. In the event the IRS audits your taxes, you may have to provide records of your qualified expenses.

Although a PA ABLE Savings account may not be for everyone, it is certainly something to consider if you or a loved one qualifies. As always, if you have any questions about the PA 529 Plans or need assistance enrolling, please feel free to contact the attorneys at Mosebach, Funt, Dayton & Duckworth. More information on Pennsylvania ABLE Savings accounts and how to enroll can be found at (www.paable.gov).