How Parents Can Make Use of ABLE Accounts
What is an ABLE account?
ABLE accounts are similar to 529 savings accounts.
An ABLE account is a tax-advantaged account that can be used to save money for disability related expenses.
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Funds in the account do not count toward Medicaid limits.
Funds do not affect SSI eligibility if the account balance is under $100,000.
KEY ELEMENTS OF ABLE ACCOUNTS
Qualifying for an ABLE account
There can be only one account per individual
ABLE ACCOUNT QUALIFICATIONS:
Both the owner and beneficiary must be the same person
ABLE ACCOUNT QUALIFICATIONS:
The owner must be the person whose disability expenses will be paid by the account
ABLE ACCOUNT QUALIFICATIONS:
The owner
must be blind or disabled according to Social Security guidelines, and the disability must have occurred before age 26.
On ABLE accounts
Contribution Limits
ABLE Account Limits
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Annual contributions are limited to the federal gift tax exclusion, which is $15,000. The maximum allowable balance in Pennsylvania is $511,758.
Account contributions are not tax-deductible for federal income tax purposes.
However, withdrawals are not taxed if they are used for qualified disability expenses.
How are ABLE accounts and special needs trusts different?
Special needs trusts and ABLE accounts may serve similar needs but have different qualifications.
Setup
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Special needs trusts offer more methods for setting up the account, such as first-party and third-party trusts for beneficiaries.
Contribution Limits
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Annual contributions to special needs trusts are not limited, and they are not subject to a cap on total funds.
Benefits and Repayment
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Third-party special needs trusts are not subject to Medicaid repayment upon the beneficiary’s death, as funds in an ABLE account can be.
What about
Pennsylvania tax benefits?
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Pennsylvania Inheritance Tax
Funds held in a Pennsylvania ABLE account are not subject to the state’s inheritance tax.
TAX CONSIDERATIONS
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Pennsylvania
Income Tax
Contributions to ABLE accounts may be deducted from PA state income tax, up to the gift tax exclusion amount.
TAX CONSIDERATIONS
Establishing an ABLE account is just one aspect of special needs planning.
Special Needs Planning
Talk to an attorney to learn more about how special needs planning can help you.
We give families the peace of mind of knowing the best possible planning is in place.
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