Act 17 of 2016 – The Pennsylvania Achieving a Better Life Experience Act (PA ABLE) – became law on April 18th. The new law authorizes the creation of special tax free savings accounts for individuals who became severely disabled before they reached age 26.
In December 2014, the Federal government first authorized states to create ABLE tax free savings account programs. ABLE accounts allow certain individuals with disabilities to accumulate savings without losing their eligibility for means tested SSI, Medicaid and other government benefit programs. To be eligible for an ABLE account an individual’s blindness or disability must have occurred before the individual reached age 26.
An ABLE account is established by and owned by the disabled individual (or by a parent or fiduciary acting on behalf of an eligible individual who is a minor or who lacks capacity). Anyone can contribute to it.
The money in an ABLE account can be used to pay for a broad range of “qualified disability expenses.” Funds can be used to pay for education, housing, health, transportation, personal support, employment training, legal and financial assistance, and more.
If the rules are followed, earnings on the ABLE account will not be subject to federal income tax, and perhaps more importantly, the funds in the account will not disqualify the owner from continued benefits under the Supplemental Security Income (SSI) and Medicaid programs. (If the account balance exceeds $100,000, SSI is suspended but Medicaid eligibility can continue.)
Act 17 provides the PA Treasury Department with the authority to enact regulations to establish and administer an ABLE account program for the Commonwealth. Treasury may coordinate the required administrative or investment structures with the already existing Tuition Account Investment (PA 529 College Saving Plan) Program.
It is anticipated that the PA ABLE program will open for accounts in the fourth quarter of 2016. Treasury has already created a website with information on the PA ABLE program. On that website you can sign up now for updates and open an ABLE account when the program becomes available.
In addition to the public benefits and federal income tax advantages, an ABLE account will not be subject to attachment, levy or execution by any creditor of a contributor, account owner or designated beneficiary. It shall not be used as security for a loan. Under Section 702 of the Act ABLE accounts are exempt from Pennsylvania income and inheritance tax. A related bill (HB1319) that will allow ABLE contributions (up to $14,000 annually) to be deducted from Pennsylvania state income tax appears to be on track to become law.
The PA ABLE program may become available to qualified individuals residing in other states. Act 17 directs Treasury to engage in joint efforts with other states to establish and maintain ABLE savings programs. And it authorizes Treasury to provide all or part of the program to beneficiaries residing in another state. Likewise, ABLE programs established by other states may become available to qualified residents of Pennsylvania.
One interesting aspect of Act 17 is its prohibition of medical assistance (Medicaid) recovery upon the death of a designated beneficiary. Section 503(d) of the Act says:
(d) Death of beneficiary.–Unless prohibited by Federal law, upon the death of a designated beneficiary, proceeds from an account may be transferred to the estate of a designated beneficiary, or to an account for another eligible individual specified by the designated beneficiary or the estate of the designated beneficiary. An agency or instrumentality of the Commonwealth may not seek payment under section 529A(f) of the Internal Revenue Code from the account or its proceeds for benefits provided to a designated beneficiary.
However, Federal law provides that after the death of the beneficiary funds remaining in an ABLE account must be used to repay any state Medicaid plan that was used by the beneficiary after the account was established. Under section 529A(f) of the Federal law, a qualified ABLE program must provide that, upon the designated beneficiary’s death, any State may file a claim for the amount of the total medical assistance paid for the designated beneficiary under the State’s Medicaid plan after the establishment of the ABLE account.
It will be interesting to see how the regulations developed by the PA Department of Treasury deal with this Medicaid repayment issue. The lack of a repayment component could make the PA ABLE program particularly attractive to qualified individuals across the entire country.
For national information on ABLE accounts you can visit the ABLE National Resource Center.
I’ve written a number of other articles on ABLE Accounts:
ABLE Accounts – a New but Limited Financial Option for the Disabled (December 22, 2014)
IRS Issues ABLE Act Clarifications (March 17, 2015)
IRS Publishes Rules for ABLE Disability Accounts (June 29, 2015)
ABLE Account Residency Requirement Eliminated (December 19, 2015)