Ready and Willing – No ABLE
In December of 2014, Congress adopted the Achieving a Better Life Experience Act, or ABLE Act. The Act permitted states to establish tax-advantaged savings accounts for individuals with disabilities to use for certain disability-related expenses. An ABLE account allows disabled individuals, or their loved ones, to set funds aside for the individuals’ needs without jeopardizing their eligibility for needs-based government benefits, such as Supplemental Security Income (SSI) or Medicaid.
To be eligible to establish an ABLE account, an individual must have been either blind or disabled before the age of 26, however, the person can be diagnosed later in life so long as the disability began before age 26.
The maximum amount of annual contributions that may be made by all contributors to an account for a particular beneficiary is the federal gift tax exclusion amount for the year, which is currently $19,000. The lifetime maximum that can be in an ABLE account varies from state to state, and can be between $300,000 and $600,000. However, if an individual’s account exceeds $100,000, it will affect their SSI eligibility (but not eligibility for other programs).
Wisconsin contributors to an ABLE account can actually deduct the contribution from their federal adjusted gross income. Like a 529 education plan, growth within an ABLE account occurs tax-free, so long as distributions are used for a “qualified expense.” A qualified expense is any expense related to the individual’s disability that is made for his or her benefit. The list is extensive and includes education, housing, groceries, transportation, employment training and support, assistive technology, vehicle adaption, personal support services, health and wellness, and funeral and burial expenses.
Since their inception, more than 137,000 tax-advantaged ABLE accounts have been opened, and people have saved over $1.25 billion so far to help pay for disability-related expenses. Despite the law being passed over a decade ago, though, Wisconsin, along with North Dakota, South Dakota and Idaho, has still not created its own program. Eligible Wisconsin residents can establish an account in any other state that allows nonresidents to create accounts.
Thankfully, Wisconsin did adopt a law at the end of last year that directed the Wisconsin Department of Financial Institutions to implement an ABLE account program for Wisconsin residents. The DFI has until August of this year to study and determine the best way to implement that program.
In addition, The Tax Cuts and Jobs Act of 2017 increased the amount of contributions allowed to an ABLE account. Under the new provisions, a beneficiary who works may also contribute his or her compensation up to the poverty line amount for a one-person household. However, a beneficiary can’t contribute this additional amount if his or her employer made a contribution to certain retirement accounts.
Further, the law also allowed funds from a beneficiary’s 529 plan to be rolled into an ABLE account of the beneficiary or of his or her family member. The rollover, though, is still counted toward the annual contribution limit.
Finally, Congress adopted the ABLE Age Adjustment Act in December of 2022. The provisions of the Act, which go into effect on January 1 of 2026, are expected to allow an additional 6 million Americans, including 1 million veterans, to have access to ABLE programs by extending the age restriction for the onset of a person’s disability from the age of 26 to 46.
Be aware, though, that any funds remaining in an ABLE account at the time of the beneficiary’s death must be repaid to the State – regardless of who contributed the funds.
So, if you have a disabled loved one, you should look into an ABLE account.
Reg P. Wydeven
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