Tax-Free ABLE Accounts

[Mercy&Grace]

Please don't misunderstand. I see many situations where it will be a Blessing. Of course I also see many situations where it will be abused. Nothing is perfect. I do believe there will be far more helped by this than there wil be those that abuse it.

I have a younger brother who has Downs. He received SSI for a number of yrs. Then he received benefits off of my fathers records and then my mothers because her was higher. I remember very well what they went through worrying about what would happen to him if something happened to them when they were younger. This will help those who were like my brother at one time and only have SSI.

[Janke]

Its NOT directed at the children of the wealthy at all. Its directed mostly at people who have been disabled for pretty much all of their lives, or at least all of their adult lives. In other words, the people with the most profound disabilities.

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It is directed at adults who have been disabled for most of their adult lives who have family members who are willing and able to set aside $14,000 a year that can be used to pay for better housing, transportation, assistive technology. There may be a few middle income families that can set aside $14,000 a year, but no low income families can do it, so it absolutely benefits disabled adults with wealthy families the most.

And administration of this will be problematic and time-consuming with a high potential for errors. What is the penalty for not following the rules and spending the money on something that is not excluded? Will the SSI check have to be paid back? What about the Medicaid expenditures? What proof will be required to show that the rules are followed? SSI already the unwieldy and practically impossible to administer properly dedicated account rules for disabled children. How much documentation will be required to be reviewed to see that the rules are followed and is there funding for the staff that will have to monitor these programs? I doubt that anyone who posts to this board would say that SSA already operates efficiently and timely.

Will the home health aide have to be licensed or trained or can it be your cousin or boyfriend/girlfriend? What about the guy that broke his neck at age 27? He gets no break and is stuck with the ridiculously low $2000 resource limit.

For decades, SSA has paid CDB benefits to the adult children of retired or deceased workers, as long as the adult was disabled before age 22, so all those working parents with Down's syndrome children already had a government sponsored benefit system. And the benefits are higher for children of parents who made more money in their jobs. And this was never a needs based program, but it meant that the disabled beneficiaries did not get all the freebies that SSI/Medicaid recipients can get.

With this ABLE program, getting CDB benefits when your parent dies may eliminate the adult from getting Medicaid so why would they want the CDB?

We all like free or inexpensive health care. Of course. And who wants to deny a Down's syndrome adult a nicer life? The US has been operating at an increasingly large deficit for all of my adult life. But is it sustainable? I guess our children's children will be able to answer that question.

[Mercy&Grace]

SSA depends on others such as state food stamp workers to verify income and resources for SSI recepients now. I'm sure that won't change. Those in Nursing Homes could be negatively affected, if the states don't change their Medicaid Resource criteria. Before this as well as now, a Special Trust could be set up and as long as the receipent didn't have access to it, it wouldn't count as a resource. We mentioned those with Downs earlier. I can't imagine a parent, other family or friends giving money to an individual with Downs to manage. So even though this can benefits those who are profoundly disabled, I don't believe they are the ones that this new law is targeted at. What about those who receive SSI, have a mental illness but can still manage their money ? There is a max amount. But, I don't believe there is anything that states if the SSI receipent spends all of the max amount in the account, that the family or friends can't put the max amount in an account again. For example, they can use it for transportation and buy a brand new car. They can get good medical care, as long as they can pay for it and not use their Medicaid. Which would save the states a little. It just seems to cause more problems than it solves. With no additional money being given for the extra oversight that will be required.

[Taxing Matters]

And administration of this will be problematic and time-consuming with a high potential for errors.

What is your basis for that conclusion? Under the Act as passed by Congress (and now awaiting the President’s signature), the ABLE accounts must be established and maintained by the state. So the state will set up the accounts and administer them. Sure, some states may prove incompetent at it, but there is nothing in the bill that suggests that this is something that will be somehow horribly complex or difficult to do. If the state sets up the program well there is no reason why it won’t run at least as smoothly as the tax free prepaid state college tuition programs (known as “529 plans”) that many states run now. Indeed, the ABLE program is modeled in part on those programs and is added in the code right after them. (The state tuition programs are under Internal Revenue Code (IRC) section 529 and the new ABLE accounts will be in the new IRC § 529A).

What is the penalty for not following the rules and spending the money on something that is not excluded?

Distributions that are for “qualified disability expenses” are tax free to the account beneficiary. Distributions for anything else are subject to tax at ordinary rates and are also subject to an additional tax of 10% (essentially a 10% penalty, like the tax for early withdrawls from IRA or qualified retirement plan).

Will the SSI check have to be paid back?

No. But the statute provides that distributions for other than qualified disability expenses and distributions for housing expenses are counted as income to the SSI recipient for purposes of determining benefits, which means it gets counted against the recipient in determining whether he/she has too much income to continue to receive the SSI benefits. Furthermore, eligibility for SSI is suspended while the ABLE account has any excess funds in it.

What about the Medicaid expenditures?

Like with SSI, distributions for other than qualified disability expenses is treated as income of the beneficiary for purposes of determining benefits and could impact the future eligibility of the beneficiary for Medicaid benefits. However, excess funds in the account would not result in suspension of any Medicaid benefits.

What proof will be required to show that the rules are followed? SSI already the unwieldy and practically impossible to administer properly dedicated account rules for disabled children. How much documentation will be required to be reviewed to see that the rules are followed and is there funding for the staff that will have to monitor these programs? I doubt that anyone who posts to this board would say that SSA already operates efficiently and timely.

Again, it is the states that will administer the accounts, not SSA. The IRS will enforce the rules for the ABLE accounts and the IRS and Treasury are directed in the Act to write the necessary regulations to implement it, including any needed regulations to prevent fraud and abuse of the program as well as what reporting will be required.

[Janke]

If Taxing Matters is correct (and I have no reason to doubt) then my conclusions were off base. If the SSI recipients/payees are not going to have unfettered access to these accounts, then I am wrong. This is an example that shows law has to be read first.

If the "states" will administer the accounts, then I am wrong in several areas. However, it raises other questions. Will there be any funds allocated to these "state" agencies to hire staff or is it just another workload that is added?

The IRS has not done a good job of preventing fraud and abuse for Earned Income Tax Credit recipients - there is lots of fake self-employment tax returns being filed these days. So I am not all that confident that the IRS will find the fraud, but maybe they will.

And apparently I am not well-versed on 529 plans, but for these ABLE accounts, the parents will have to turn their gifts over to the state with the belief that the state will administer the funds correctly? I am not sure I would trust the state with $14,000 of my money. Takes them forever to get me my tax refund. But it could work.

Guess we will find out.

[Mercy&Grace]

With the states in charge of the accounts, it does remove the likely hood of family and friends and the receipent abusing it. Thank You, Taxing Matters.