The ABLE Act Explained: Achieving a Better Life Experience (ABLE)

The Achieving a Better Life Experience Act (ABLE) was signed into law by the President on December 19, 2014. Tax-free savings accounts can now be built for a population that has historically been forced to live in poverty. Up until now, in order to be eligible for SSI and Medicaid, a person could not have more than $2,000 in cash and property ($3,000 for couples) or make more than $700 monthly (!) in order to be eligible for Medicaid or SSI.

This means they can’t save money for things that Medicaid and SSI don’t cover like education, housing, a job BLOG_12232014coach or transportation. While the rest of society is encouraged to save for emergencies, unforeseen expenses and rainy days, people with disabilities – who have naturally higher expenses and higher medical needs – were forced to scrape pennies and do without due to archaic laws and discriminatory notions held by society in general.

What is the ABLE Act?

This bi-partisan piece of legislation will give people with disabilities and their families freedoms and security never before experienced. It amends the IRS code of 1986 to allow savings accounts to be set up for individuals with disabilities much like the college tuition accounts known as “529 accounts” that have been around since 1996.

The Treasury Department is currently writing all of the regulations. There will then be a period of time where public comments on the proposed rules will be allowed. Before the end of 2015, every State will be responsible for establishing and operating an ABLE program.

How does it work?

In a nutshell, an ABLE savings account can be opened up by an individual with a disability or by someone else on their behalf. Up to $14,000 may be deposited yearly untaxed, with that amount to be increased as inflation rises. If an account surpasses $100,000, the owner of the account will no longer be eligible for SSI but would not be in danger of losing Medicaid. When a person dies, Medicaid will be reimbursed first from the account before it is dispersed to the person’s estate.

What can the funds be used for?

Any disability-related expenses, including:

  • Education
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology and personal support services
  • Health, prevention and wellness
  • Financial management and administrative services
  • Legal fees
  • Funeral and burial expenses

This is a great step forward in the right direction for this community. Let’s hope the regulations are completed sooner rather than later so that individuals and families can begin saving for a better life!

The Need for Congress to Pass the ABLE Act

by Vilissa K. Thompson, LMSW

U.S. Capitol Building 1

The ABLE Act has the potential to improve the financial and employability statuses of people with disabilities in this country, if enacted.  The Achieve a Better Life Experience (ABLE) Act gained the attention of the disability community when it was first introduced into Congress on February 13, 2013.  The ABLE Act was not decided on last year due to the fact that the Congressional session ended before the bill could be considered; however, it has the support of over 400 co-sponsors in the House and Senate.  Having such a large amount of support gives many disability advocates, including yours truly, great hope that the Act will be considered and passed this year.

The purpose of the ABLE Act is to prevent disabled savers from losing their benefits by affording them the opportunity to open special tax advantaged saving accounts.  Under current policy, those who receive social security benefits such as Supplemental Security Income (SSI) and Medicaid cannot have saving assets of more than $2,000 in an account, and cannot earn income over $700 a month.  Those two financial restrictions unfairly places beneficiaries in the proverbial “a rock and a hard place.”  If beneficiaries have assets or income that exceed these financial thresholds, their benefits will be cut off.  If they decide not exceed these financial thresholds, then their employment and independence opportunities will be severely reduced.

I will give you a fictional example of the “rock and a hard place” choices people with disabilities like myself endure when it comes to wanting to be independent, but fear losing one’s benefits:

“Anita” was offered a part-time telecommuting position that would pay her the current minimum wage rate of $7.25 an hour.  Anita currently receives SSI and Medicaid benefits because she has a physical disability.  In order to keep her benefits, Anita could only work 24 hours a week, which would total $174 a week of earned income for her.  With this weekly schedule, Anita would earn $696 a month before taxes, which would put her under the $700 monthly financial threshold amount by $4.  

Anita would have to report her new income source to the Social Security Administration (SSA), which would take into consideration her total earnings, and not the amount Anita actually brings home after taxes.  The SSA has a special mathematical formula it utilizes to figure how much of Anita’s earned income should be counted against her benefits.  Anita’s monthly wage before taxes was $696; SSA would subtract 85 from this amount, and then divide that amount by 2 to figure how much her SSI benefits for that month should be reduced.  So, $696 – 85 would equal $611.  $611 divided by 2 would be $305.50.  Social Security would count $305.50 against Anita benefits, which would reduce her SSI benefits amount from $721 a month to $415.50 a month.  (The 2014 cost of living adjustment (COLA) for SSI beneficiaries is $721.)

This gross reduction of SSI does nothing to elevate Anita out of poverty.  Anita would have only $1,111.50 ($415.50 in reduced SSI, and the $696 (before taxes) she earned from working) to live off each month, which is not enough to cover the basic human needs of food, housing, and clothing.  This example is not hypothetical; it is fact.  This is the dreadful choice people with disabilities have to make:  do I work and put my benefits in jeopardy, or do I live off $721 a month that will keep me deep in poverty, and not allow me to be able to afford housing, transportation, entertainment, have an emergency fund, “nest egg” savings, and other “luxuries” that most take for granted?

This is why the passage of the ABLE Act is imperative – it would extinguish the current barrier of working and saving by ensuring that money saved through ABLE accounts would not be counted against the federal benefits an individual receives.  The ABLE Act would ease financial strains by allowing the tax-free saving accounts to cover qualified, essential expenses such as medical and dental care, community based supports, employment training, assistive technology, housing, education, and transportation.

The bill would assist in supplementing the benefits they already receive from private insurances, Medicaid, SSI, their employment, and other sources.  An ABLE account would provide people with disabilities the same types of flexible saving tools that other Americans have through college savings accounts, health savings accounts, and individual retirement accounts (IRAs).  Returning to our example, if the ABLE Act passed, Anita would be able to open an ABLE account where she could deposit her earned income and keep her SSI and Medicaid benefits intact.  This newfound freedom would allow people with disabilities to work without the fear of being penalized.

Like millions of Americans with disabilities, I am anxiously waiting for the passage of the ABLE Act.  From a personal standpoint, the ABLE Act would open a plethora of doors for me as an entrepreneur and a freelance writer.  Not having to worry about how much I earn or how much I have saved would be a joyous moment.  People with disabilities want the same things as everyone else – to work, have healthcare coverage, and be able to living independently and support themselves and those they love.  The ABLE Act would turn those hopes into reality.  Please urge your federal representatives to support and pass the ABLE Act this year because it is long overdue.

(Featured headlining image:  Courtesy of The Denver Channel.)

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