Hurray! It is finally here. Michigan’s ABLE Account (The Achieving a Better Life Experience) will provide a great tool for individuals with disabilities to accumulate savings. Michigan’s ABLE program is aptly titled MiAble. It was created to encourage and assist individuals and families to save funds for the purpose of supporting individuals with disabilities. It can be used to maintain health, independence and quality of life; and to provide secure funding for qualified disability expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Supplemental Security Income (SSI) program, the Medicaid program, the beneficiary’s employment and other sources.
The Michigan Department of Treasury entered into an agreement with TSA Consulting Group for the management, administration and investment services for Michigan’s ABLE Account. They are currently building the infrastructure for this program and expect to begin enrolling customers by the end of this year.
The federal ABLE Act was signed into law in December 2014. Michigan’s ABLE Account (MiABLE) was signed into law in October 2015. The Michigan Department of Treasury will administer Michigan’s ABLE Account program.
The state-sponsored accounts are formally known as 529 ABLE, or 529A, accounts. Authorized in 2014 by the Achieving a Better Life Experience Act (ABLE Act), the accounts are modeled loosely on the easy-to-use 529 college savings accounts.
The main benefit of the new accounts is that they allow disabled people to accumulate significant savings without jeopardizing their eligibility for need-based government help like Supplemental Security Income (SSI) or Medicaid. Disabled people, their families and friends can contribute as much as $14,000 a year without putting federal benefits at risk.
Millions of individuals with disabilities and their families are often relegated to a life of poverty as a result of not being allowed to build even the most modest levels of resources. Individuals receiving support through Social Security, Medicaid, and other publicly funded programs, are often disqualified if they have more than $2,000 worth of resources or assets. Now, for the first time, individuals with disabilities and their families will be able to take a step to better secure their financial futures and to help offset the significant financial challenges that can accompany living with a disability.
A special needs trust, also called a supplemental needs trust, can be used to shelter a disabled person’s assets, but can be more expensive to establish and maintain. ABLE accounts are intended to offer a simpler, less costly option, when the amount being protected is smaller (less than $14,000 per year). Michigan’s ABLE account does have some limitations. Just like funds placed in a first party supplemental needs trust, funds remaining in a Michigan ABLE account may be utilized to repay state Medicaid costs after a beneficiary’s death.
What are ABLE Accounts?
ABLE Accounts are an investment account available to eligible individuals with disabilities. ABLE Accounts are made possible by the federal Achieving a Better Life Experience (“ABLE”) Act. ABLE Accounts allow individuals with disabilities to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Earnings in an ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.”
Michigan’s ABLE Account will have some similar features to normal bank accounts, but they are not checking or savings accounts. ABLE Accounts are investment accounts, similar to 529 college savings accounts or 401(k) retirement accounts. When you deposit money into your ABLE Account, your money will be invested in different options that you choose. While you can still withdraw and spend your money whenever you need it, ABLE Accounts also allows you to grow your money and to save long-term for disability expenses.
Federal ABLE Legislation
The Achieving a Better Life Experience (“ABLE”) Act was passed in December of 2014. It is the federal legislation that allows families and individuals with disabilities the opportunity to create tax-advantaged accounts that can be used to help maintain health, independence, and quality of life. To read the legislation, visit this link.
What is the Michigan’s ABLE Account tax advantage?
Michigan provides for a $14,000 total annual contribution and an account limit of $500,000.00. House Bill 4543 allows for a $5,000 income tax deduction for single tax filers and a $10,000 for joint tax filers.
Distributions from Michigan’s ABLE account, including any earnings, are not taxed if used for qualified disability expenses. If a distribution is not used for a qualified disability expense, that amount could be subject to income tax and imposed a 10 percent penalty.
Distributions not used for qualified disability expenses could also affect other benefits. For federal income tax purposes, the ABLE owner should keep careful records when funds are withdrawn.
Furthermore, contributions to a Michigan’s ABLE account are deductible for up to $5,000.00 for a single return and $10,000.00 for a joint Michigan Income Tax return.
Can an eligible individual have more than one ABLE account?
No. Eligible individuals can only have one Michigan ABLE account, but anyone can contribute to their account.
Who is eligible for an ABLE account?
An individual is eligible if they became disabled or blind before the age of 26, and either is currently entitled to Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), or gets a disability certification under rules the U.S. Treasury will write.
The U.S. Treasury proposes that a person with signature authority, like an agent having power of attorney, or a parent or legal guardian, may aid eligible individuals who may not be able to open a Michigan ABLE account themselves.
Who is responsible for administering the Michigan ABLE Account Program?
The law tasks the Michigan Treasurer with administering the Michigan’s ABLE account program.
How much money can be deposited in an ABLE account?
There is an annual limit on the total amount that can be paid into an ABLE account. Annual deposits (contributions) to an ABLE account cannot exceed the individual gift tax exclusion in effect for the calendar year in which the contribution is made (in 2015, the amount is $14,000).
An ABLE account is considered a 529 account by the IRS. The maximum contribution limit for all Michigan 529 plans combined for a designated beneficiary is $500,000 – this includes any 529 prepaid tuition or college savings accounts the beneficiary may have.
The first $100,000 in an ABLE account would not be considered a resource when determining eligibility for SSI. If the account exceeds $100,000, the designated beneficiary could lose their monthly SSI cash payment but would continue to receive Medicaid benefits.
How can an ABLE account be used?
A Michigan ABLE account must be used for “qualified disability expenses” that relate to the designated beneficiary’s blindness or disability and are for the benefit of that beneficiary in maintaining or improving his or her health, independence or quality of life. Internal Revenue Code, Section 529(e)(5), lists the following as qualified disability expenses:
- employment training and support;
- assistive technology and personal support services;
- health; prevention and wellness;
- financial management and administrative services;
- legal fees; expenses for oversight and monitoring;
- funeral and burial expenses;
- and any other expenses that may be identified from time to time in future guidance published in the Internal Revenue Bulletin.
- Expense payments from a Michigan ABLE account are referred to as “distributions” in the federal ABLE Act and legislation.
A distribution for housing expenses from a Michigan ABLE account would be considered a resource when determining eligibility for SSI and could affect the designated beneficiary’s Medicaid benefits.
The Probate Pro can help!
Need information? The Probate Pro is happy to assist in establishing a Michigan ABLE Account. Please call us at (248) 399-3300.