On June 18, 2018, The New Jersey Human Services Commissioner announced a new program to help individuals with disabilities through ABLE accounts which can now be opened in New Jersey. By opening an ABLE account in New Jersey, individuals with disabilities can save tax free for certain eligible expenses (qualified disability expenses) and the funds saved in the ABLE account will not be counted as assets for Medicaid and other benefit programs.
ABLE stands for “Achieving a Better Life Experience” and the Act authorizing these accounts was signed into law by President Obama in December 2014. The purpose of the law was to allow tax-free savings accounts to be set up by individuals with disabilities.
Anyone can make contributions to the account including a disabled person, and her family and friends. The account can have a balance of up to $100,000 and the funds in the account will not count towards the SSI/Medicaid asset cap of $2,000. However, upon the death of the beneficiary of the account, Medicaid can recoup its expenses from the account balance to the extent it expended benefits to or on behalf of the beneficiary of the account.
An individual may only have one ABLE account. To be eligible for an ABLE account, an individual must have documentation demonstrating that the disability’s onset occurred before the individual reached the age of 26. Deposits to the account are capped of $15,000 per year for the person making a contribution to the account. The federal tax on earnings generated by the funds invested in the NJ ABLE account are deferred and tax free if used to pay for qualified expenses. Qualified expenses are detailed in the federal law. Qualified disability expenses are those expenses related to the disability of and are for the benefit of the designated beneficiary and include, among other things: education; housing; transportation; employment training and support; assistive technology and related services; personal support services; and health. If savings are used for expenses which are not included as qualified expenses, then the earning portion of the funds used for non-qualified expenses will be treated as income and will be taxed at the beneficiaries tax rate, and will be subject to a 10% federal tax penalty, and will subject to applicable state taxes.
Only eligible individuals can benefit from ABLE Accounts. Eligible beneficiaries can open their own account, or another authorized individual can open the account for them. An individual is eligible if their disability began before the age of 26; and they are eligible for SSI or SSDI, or they are blind pursuant the Social Security Act, or they have a similarly severe disability diagnosis from a licensed physician. Proof is not required to open the account; however, you must maintain annual documentation which you can produce upon request.
Our firm helps people with estate and elder law planning, and providing for family members with special needs and disabilities. If an ABLE Account is not sufficient to meet your needs, please contact one of the attorneys at McLaughlin & Nardi, LLC by phone (973-890-0004) or e-mail to discuss setting up a Special Needs Trust.