Financial Guidance on ABLE Accounts

We conducted a webinar on financial planning related to ABLE savings accounts with Cynthia Haddad, a Certified Financial Planner from Affinia Financial Group. Individuals with disabilities can save in ABLE savings accounts for short and long-term disability-related expenses without affecting their federal benefits. The Massachusetts ABLE plan, sponsored by MEFA, is called Attainable®. In our webinar conversation, we talked about the key features of ABLE accounts and real-life examples of how clients utilize these accounts to benefit themselves or family members. Here are a few questions we discussed.

Q: What are some real-life examples of the use of ABLE accounts that come up in your financial planning practice?

Cindy: We see many families who have funded 529 college savings plans for their children who can't enroll in a college program, so with the recent tax update that allows individuals to rollover up to $18,000/year from a 529 to a 529A (an ABLE account), they are able to move this money with no penalty and use it for qualified disability expenses and have a bit more flexibility in spending. Qualified expenses for an ABLE account include, but are not limited to, items like healthcare, housing, transportation, employment training, basic living (food, clothing, etc.) and personal support services. Additionally, with gifts from grandparents, we also see ABLE accounts as a fantastic vehicle to deposit these gifts that individuals with disabilities might receive.

Q: What do you see as the biggest benefits with ABLE accounts?

Mary: I really see the flexibility in spending and access to the account as a huge benefit to ABLE. In addition to broader spending power for things like housing and food, the account owner has immediate access to funds, and the account can be established, managed, and owned by the individual with a disability. This differs from access and spending from a special needs trust.

Q: Can you talk about the benefits of having both a special needs trust and an ABLE account?

Mary: They truly can work as fantastic complements to each other. While you can't pay for a housing expense directly from a trust, you can move funds from the trust to an ABLE account and then pay that expense directly from ABLE.

Q: Can trusts make contributions to ABLE?

Cindy: Yes, they can be written or amended to make distributions to an ABLE account.

Q: How do trust differ in receiving contributions vs ABLE?

Cindy: Trusts can accept unlimited dollars and non-cash assets, such as real estate. ABLE has yearly limits and a total overall account maximum and ABLE cannot accept non-cash assets.

Q: Can you talk a bit about the tax benefits to ABLE?

Cindy: ABLE offers tax-exempt growth and no penalties if used for qualified disability expenses, and the really huge benefit is it allows an individual who is receiving Supplemental Security Income (SSI) to save up to $100,000 with no impact on their benefits.

Q: Can a parent or guardian manage the ABLE account for the individual with the disability?

Mary: Yes. You can establish a Person with Signature Authority, or PSA, on the account, and that individual can manage the account for the beneficiary. The PSA must be a parent, guardian, or power of attorney. In the case of a guardian, the person must have guardianship of the individual AND the individual's estate. To become the PSA on an Attainable® account, the guardian simply needs to complete and submit this form with the appropriate guardianship paperwork.

Q: So to clarify, an individual with the disability is always the account owner or beneficiary of an ABLE account?

Mary: Yes. The individual with the disability is always the account owner, but there may be times when a PSA is needed as well on the account.

Q: What happens to an ABLE account upon the account owner's death?

Mary: Upon the owner's death, the money remaining in an ABLE account goes to the account owner's estate. Prior to that happening, any outstanding disability expenses and burial expenses can be paid from the individual's ABLE account. In Massachusetts, if that person received Medicaid, there is a Medicaid Recapture provision that exists, whereby the state may or has the potential to recapture some of the money paid out to that individual minus any Medicaid premiums the person has paid. The Medicaid Recapture is only applicable during the time that the ABLE account was opened until the person's passing. Prior Medicaid payments made before the ABLE account was opened are not included in this recapture.

To learn more about Attainable®, the Massachusetts ABLE savings plan, visit our dedicated webpage here.