Achieving a Better Life Experience (ABLE) Act State Solutions
On December 19, 2014, the President of the United States signed the Tax Extenders package, making the ABLE Act the law of the land, and for the first time in public policy, the extra and significant costs of living with a disability were recognized. The ABLE Act aims to ease the financial strains of individuals with disabilities by allowing them to create tax-free savings accounts to cover qualified expenses such as education, housing, and transportation. This bill is intended to supplement, not supplant, other benefits from private insurance, Medicaid and other sources. The ABLE Act will provide disabled individuals the same types of flexible savings tools that are found in college savings accounts, health savings accounts, and individual retirement accounts. Additionally, money contributed to ABLE Accounts will not count against an individual’s eligibility for any federal benefits program.
Comparing 529 College Savings and ABLE Plans
There are distinct characteristics that separate ABLE accounts from 529 College Savings accounts. The ABLE Act restricts the number of accounts to one per beneficiary, while 529 accounts are generally unrestricted. The ABLE Act also has a claw-back clause, which will allow Medicaid access to funds left in the account should the beneficiary pass away. Current 529 College Savings accounts have no such clause. Annual contributions are currently capped at $14,000 for ABLE accounts, but many suspect that this number will be raised because of the significant costs involved in living with disabilities. Current 529 College Savings accounts are generally invested for use years later, while ABLE accounts could be accessed and used immediately. ABLE accounts also have a much broader definition of how they can be used, while 529 College Savings accounts have clearly defined parameters. It is expected that the total number of 529 College Savings accounts will be significantly higher than ABLE accounts, based solely on the fact that their eligibility pool is much greater. While different in nature, there are some similarities as both types of plans share many of the same tax advantages and features.
Different State Options
The ABLE Act helps to create a great opportunity for the approximately 6 million disabled individuals in America who may qualify. However, it is up to individual States to institute ABLE programs. These programs will most likely involve a third-party administrator (“TPA”) and will take one of two forms.
- An individual state will build a stand alone program with a TPA
- Individual state will build an administrative program with a TPA and offer their plan to other states (Contractor State)
Each of the above options has their advantages and disadvantages, but option one has the burden of being cost restrictive while the other one will benefit from economies of scale.
Intuition LLC, the parent company of Intuition College Savings Solutions, has completed its due diligence and plans to institute an ABLE program as a TPA. Below you will find a link to the new Intuition ABLE Solutions Website.
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