By Teresa McUsic,
THE SAVVY CONSUMER
.A new savings account will be available next year that could help several hundred thousand disabled Texans, while allowing them to continue with federal benefits like Medicaid and Supplemental Security Income (SSI).
First a little background. Last December, Congress passed the ABLE (Achieving a Better Life Experience) Act, allowing a tax-advantage savings option for a certain group diagnosed early in life with disabilities. States were required to pass similar legislation for the ABLE Act to be realized in their boundaries.
So far more than 30 states have followed suit, including Texas. In May, the Texas legislature unanimously voted and Gov. Greg Abbott signed its version of the act.
Later this month, the state program will begin a 90-day comment period for proposed rules, with Texas ABLE savings accounts available by mid-2016.
Modeled after the 529 college savings accounts, an ABLE account or 529A is not for everybody. To qualify, you have to have been diagnosed with a severe disability before age 26, regardless of your current age.
But if you qualify, you will be able to save money tax free in your own name without risk of losing benefits like Medicaid because of its $2,000 individual resource limit.
According to the IRS, in general an ABLE account is not to be counted in determining the designated beneficiary’s eligibility for many federal means-tested programs, or in determining the amount of any benefit or assistance provided under those programs. Once an account exceeds $100,000 SSI benefits would be impacted, however.
“This is a game changer,” said Dennis Borel, executive director of the Coalition of Texans with Disabilities, the lead advocacy group on the Texas legislation. “Currently a person with a significant disability would access things like Medicaid and it would put them into poverty.”
Borel estimates several hundred thousand Texans will qualify for the new accounts.
ABLE accounts will allow individuals to save up to $14,000 annually through either their own employment or through financial gifts from family and friends, then used the money for certain qualified expenses. Accounts are allowed to grow to up to $100,000. Any amount over that would suspend, but not remove, a person’s eligibility for Medicaid. The Texas version of the law allows accounts to grow to $370,000.
Growth and distributions from the accounts are tax-free if used for qualified expenses, according to the IRS.
Expense guidelines have yet to be finished by the IRS, but the broad categories include education, housing, transportation, personal support services and health prevention and wellness, among other categories.
Many items that qualify are not covered by programs like Medicaid, Borel said. Even wheelchairs, which are covered, can only be replaced every five years, he said. Often a disabled person will outgrow or wear down their wheelchair before that time frame.
The accounts also could enable some disabled Texans to stay in their homes longer, putting off institutional care and the need for Medicaid to pay for it, said Erin Lawler, director of disability services at the Texas Council of Community Centers.
“It could make the difference,” she said. “If someone needed home modifications like a ramp or a van with a wheelchair lift for transportation and had this savings account, they could use that money to stay in their home.”
The advocacy community is excited about the new accounts, Lawler said.
“It’s one more long-term plan option,” she said.
The state legislature was receptive to the idea because the funds were private, not public, said Chris Masey, a public policy fellow with the Coalition of Texans with Disabilities. No tax dollars will be in the accounts.
“It’s a hand up versus a hand out,” he said. “An ABLE account will be another tool in the tool kit.”
A special needs trust is another way for families to put assets aside for a disabled child, but the legal fees can be high in establishing such a trust, and are generally used for larger sums of money, Masey said.
“ABLE accounts will be more like a checking account that allows you to build up some savings,” he said.
Another current option for Texans is a master pooled trust run by the Arc of Texas. Available to anyone under 65 with a disability, the trust offers an account with low funding requirements and benefit protections similar to the 529A. Cost to start is $600 with annual maintenance fees and consultation charges. The funds are managed by JPMorgan Chase bank. For more information, go to www.thearcoftexas.org.
The 529A accounts will be managed through the Texas Comptroller’s office, working in conjunction with a financial institution. The Prepaid Higher Education Tuition board will be in charge of the new accounts.
To track the development of the accounts, the comptroller will create a unique website to educate Texans. Check the comptroller’s website at comptroller.texas.gov for updates.
Teresa McUsic’s column appears in the Fort Worth Star-Telegram. TMcUsic@SavvyConsumer.net