You probably already know a thing or two about the ABLE Act. It offers new flexibility and autonomy for people with disabilities. Now residents of Arizona can open an ABLE Act account with the new AZ ABLE program.
What is ABLE?
The Achieving a Better Life Experience Act passed Congress in 2014. It permitted states to establish accounts for individuals with disabilities. The rules are fairly straightforward, and the benefits obvious. Still, it has taken several years for states to get their accounts set up.
AZ ABLE is Arizona’s new ABLE account. It is online at AZ-ABLE.com. It is easy to sign up online, and you can open an account in just a few minutes.
You may be familiar with Section 529 education accounts. The ABLE Act borrowed the Section 529 structure as its base, with (of course) appropriate changes. In fact, you can now transfer an existing 529 account into an ABLE account, with some limitations. As we recently explained, though, you should get advice before doing so.
Basic rules
Arizona’s ABLE Act account follows federal rules. The maximum contribution to an account in any one year is $15,000. That limit will increase over time, but slowly. There is an exception, allowing an increased contribution for some beneficiaries who qualify.
There is one major limitation to mention right up front. Any money left in an ABLE Act account at the death of the beneficiary will be payable to the state Medicaid agency. For someone receiving benefits from the Arizona Health Care Cost Containment System, that means AHCCCS will get most or all of the balance in an ABLE Act account.
One more important limitation: the ABLE beneficiary has to have been disabled before age 26. There is no particular logic to that requirement. It just helps keep the cost (to the government) lower, since fewer people will be able to open accounts.
Still, the money accumulated in an ABLE Act account can be used by the beneficiary during life. In fact, the beneficiary is in control of the money. The beneficiary can make investment decisions, direct payments — and even carry a debit card to withdraw funds from the account.
What if the beneficiary is unable to manage money?
An ABLE Act account belongs to the beneficiary. A guardian, parent, or agent on a power of attorney can open and manage the account, however. Most people will easily figure out how to open the account and who can handle it.
The beneficiary can select among several investment options. They might want to leave the money in the account, allowing it to grow over time. In other cases, the account might help pay monthly expenses without affecting eligibility.
Should every person with a disability open an ABLE Act account?
No. While the new accounts are really interesting, and helpful in many circumstances, they are not for every person with a disability. In an earlier article we explained who we think might benefit from an ABLE account. Let us summarize:
- ABLE Act accounts will be very beneficial for people who are able to manage — or help manage — some assets. Previous rules limited them to never having more than $2,000 in an account. That limit is now elastic.
- People who rely on someone (a parent, or a trust) to help pay rent and living expenses suddenly have a new way of handling that problem. It might even be possible to increase their Supplemental Security Income (SSI) checks by using an ABLE account to handle the expenses.
- Interested in saving — perhaps for a new vehicle, or a planned, and expensive, vacation? The ABLE Act account might be a good mechanism.
- Maybe you have a part-time job and few expenses. You might have problems keeping your account below the $2,000 limit. ABLE Act accounts to the rescue!
Keep in mind, though, that ABLE Act accounts are not a substitute for a well-drafted special needs trust. You should be very cautious about putting money in your child’s ABLE Act account to save money on legal planning. You might subject your child’s inheritance to a payback requirement that you will regret.
What’s special about Arizona’s ABLE Act account?
Arizona decided to sign on with the Stable Account platform, operated by the State Treasurer of Ohio. That is the largest ABLE provider in the country, and already has related programs in several states.
For about two years Arizonans have been permitted to open ABLE accounts in other states. Most of those who have decided to do so have chosen the Stable Account anyway. Now that relationship with Arizona has been formalized and extended.
There is no government subsidy or state tax incentive for opening an AZ ABLE account. There is, though, an income tax benefit — earnings in the account grow tax-free. Distributions from the account are also untaxed, so long as they are used for qualified disability expenses. A long list of expenditures (including housing, travel, therapy and medical equipment) will satisfy the requirement as a qualified disability expense.
A fair number of Arizona residents have waited for an Arizona ABLE alternative before making the decision to open an account. The time is here — AZ ABLE gives Arizonans their own ABLE alternative.
One Response
If you or a family member has a disability, an Arizona ABLE Act account might be a practical method for handling funds. But I also want to add that it is not a replacement for a parent’s estate planning. Nonetheless, parents should still consider a third-party special needs trust.