Lahti, Lahti & O'Neill, P.C. Blog

Monday, December 22, 2014

New Tax-Free Saving Plan for Individuals Who Suffered Significant Disabilities Before The Age of 26

By Michael T. Lahti, Esq. 

Senate Retroactively Renews Tax “Extenders” and Votes in “Able Act”

The Senate, on December 16, 2014, passed legislation to retroactively renew expired tax extenders through the end of 2014, and to authorize disabled individuals to set up section 529 savings accounts for living expenses such as housing and education.  The Tax Increase Prevention Act of 2014 (H.R. 5771) now goes to President Obama for his signature. The bill includes the text of the Achieving a Better Life Experience (ABLE) Act. The Achieving a Better Life Experience Act (“ABLE Act”) would allow states to establish and operate an ABLE program under which individuals who suffered a "significant disabilitity" under age 26 would be able to open a section 529 savings account. This will enable them make annual contributions up to the gift tax exclusion limit, which is $14,000 for 2014 but is adjusted for inflation each year.

The ABLE Act will help disabled persons save their own money to help pay for long-term care. Specifically, the ABLE Act helps people with disabilities save for college and retirement. Currently, a child diagnosed with a disability can’t have assets worth more than $2,000 or earn more than $680 per month without forfeiting eligibility for government programs like Medicaid. However, the Able Act would allow a tax-free savings account up to $100,000 to pay for disability-related expenses.

When this bill was debated lawmakers spoke, often movingly, of their hopes for their own children facing the claims of disability.

“When Cole was born, my husband and I were told don’t put any assets in his name because he may need to qualify for one of these programs in the future,” said Rep. Cathy McMorris Rogers (R) of Washington, speaking of her son.

This bill received support on both sides of the aisle. “The bill appeals to Democrats because we are protecting benefits and entitlement programs for people with disabilities, and it appeals to Republicans because this is a private sector solution to a public sector problem,” says Sara Hart Weir, interim president of the National Down Syndrome Society.  “It’s an incentive for people with disabilities to work that breaks down barriers to employment,” says Ms. Weir. “It’s people saving their own money.”

The bill limits eligibility to those who incured a significant disability before the age of 26.  It sets a $14,000 per year cap on contributions, and limited accounts to one per person.

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