A new savings account will be available next year that could help several hundred thousand disabled Texans while allowing them to keep federal benefits like Medicaid and Supplemental Security Income.
Here’s a little background. In December, Congress passed the ABLE Act — Achieving a Better Life Experience — allowing a tax-advantaged savings option for people diagnosed early in life with disabilities. States had to pass similar legislation for the ABLE Act to take effect within their boundaries.
More than 30 states have done so, including Texas. In May, the Legislature unanimously approved it, and Gov. Greg Abbott signed the state’s version of the act.
This month, the state program will begin a 90-day comment period for proposed rules. Texas ABLE savings accounts are expected to be available by mid-2016.
Modeled after 529 college savings accounts, an ABLE account, or 529A, is not for everybody. To qualify, you must have been diagnosed with a severe disability before age 26, regardless of your current age.
If you qualify, you can save money tax-free in your own name without risking losing benefits like Medicaid, which is available only to individuals with no more than $2,000 in available liquid assets.
According to the IRS, an ABLE account generally won’t 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, however, Supplemental Security Income benefits would be affected.
“This is a game-changer,” said Dennis Borel, executive director of the Coalition of Texans with Disabilities, the lead advocacy group on the state legislation. Previously, he added, people with significant disabilities would have to spend down their assets before accessing Medicaid, “and it would put them into poverty.”
Borel estimates that several hundred thousand Texans will qualify for the new accounts.
With ABLE accounts, individuals can save up to $14,000 annually through either their own employment or financial gifts from family and friends, then use the money for certain qualified expenses. Accounts can grow 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. The agency hasn’t finished expense guidelines, but the broad categories include education, housing, transportation, personal support services, and health prevention and wellness.
Many qualifying items are not covered by programs like Medicaid, Borel said. Wheelchairs, which are covered, can be replaced only every five years, he said. But people will often outgrow or wear down the chairs before then.
The accounts could also allow 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 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 handout,” 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 to establish such trusts can be high, and they’re generally used for larger sums, Masey said.
“ABLE accounts will be more like a checking account that allows you to build up some savings,” he said.
Another 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 with benefit protections similar to the 529A. The starting cost 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 in conjunction with a financial institution. The Prepaid Higher Education Tuition Board will be in charge of the accounts.
To track the development of the accounts, the comptroller will create a website to educate Texans. Check comptroller.texas.gov for updates.
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net