First effective in 2015, the federal Achieving a Better Life Experience (ABLE) Act created Internal Revenue Code section 529A qualified ABLE programs, which provide a means of tax-favored savings for disabled individuals.

Section 529A qualified ABLE programs are modeled on Section 529 qualified tuition programs and must be implemented by individual states. States that have already enacted ABLE programs include: Kansas, Virginia, North Dakota, Arkansas, Utah, Louisiana and Massachusetts. Many other states have legislation pending.

The features of 529A programs include:

  • Accounts are only available for individuals who became disabled before age 26. Disability is defined in accordance with the Social Security Act.
  • Contributions are made on an after-tax basis and are currently limited to $14,000 per year per beneficiary from all sources.
  • Account balances of $100,000 or less will not disqualify the disabled individual from Supplemental Security Income (SSI). SSI payments will be suspended when account balances exceed $100,000, but will resume when balances fall to $100,000 or less. Medicaid eligibility is not impacted by the amount of a 529A account balance.

Previously, SSI and other public benefits were not available to disabled individuals with $2,000 or more in assets.

  • Earnings are tax free.
  • Distributions are tax free if they are used for qualifying expenses. Qualifying expenses include education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, oversight and monitoring, and funeral and burial expenses.
  • Distributions that are used for nonqualifying expenses are taxed as ordinary income and are subject to an additional 10% penalty.
  • Distributions may only occur in the state where the disabled individual resides.

                        Presumably, this will facilitate compliance regulation.

  • Any balance left in the 529A account after the disabled individual’s death is subject to a recoupment claim by the state’s Medicaid program for payments made after the 529A account was opened.

Section 529A ABLE programs provide a familiar formula for low cost tax-favored savings that will enable families to provide support for disabled loved ones without jeopardizing access to public benefits — at least as long as account balances do not exceed $100,000. It is a welcomed benefit that is expected to see wide adoption by states across the country.

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Photo of Melissa Ostrower Melissa Ostrower

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit…

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit plans.  Ms. Ostrower has extensive experience in executive compensation matters and counsels both public and private companies on executive compensation issues, including Section 409A and 162(m) of the Code.

Ms. Ostrower is also a member of the Jackson Lewis healthcare reform task force and is intimately involved in helping Jackson Lewis clients ensure compliance with recently enacted healthcare reform legislation.

Ms. Ostrower is a graduate of Brandeis University (B.A., M.A.), George Washington University Law School (J.D.) where she was a member of The Law Review, and New York University (LL.M.).

Photo of Stephanie O. Zorn Stephanie O. Zorn

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee…

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee benefits practice includes counseling clients with regard to plan compliance, administration, participant disclosures, reporting and drafting requirements under ERISA, the Internal Revenue Code, ACA, HIPAA and COBRA.  Ms. Zorn assists clients with a broad range of plans, including retirement plans, welfare benefit plans, nonqualified plans, executive compensation plans, severance plans and voluntary early retirement plans.  Ms. Zorn’s practice includes counseling clients on fiduciary compliance — including investment selection, service provider reviews and plan committee issues — and merger and acquisition issues.  Ms. Zorn also represents clients in a range of employee benefits claims and litigation, including ERISA claims for plan benefits and COBRA compliance challenges.

Ms. Zorn’s employment practice consists of counseling and defending employers in connection with discrimination, harassment, disability accommodations, family and medical leave and wage and hour matters.  Ms. Zorn also assists clients with reductions in force and reorganizations, noncompete and confidentiality agreements, retention agreements, service provider classification, outsourcing and international labor and employment matters.

Ms. Zorn is a frequent speaker on employee benefits and employment law issues, including federal health care reform and discrimination laws.