By: Stephanie Hoffer
Passed as part of the Stephen Beck, Jr. Achieving a Better Life Experience Act of 2014 (the “ABLE Act”), IRC § 529A permits the creation of savings accounts, similar to college savings accounts, for individuals with qualifying disabilities. Although ABLE accounts are tax-preferred, tax preference is not the star of the show. Rather, the key feature of ABLE is its requirement that when determining an account owner’s eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI), “any amount (including earnings thereon) in the ABLE account . . . of the individual, any contributions to the ABLE account of the individual, and any distribution for qualified disability expenses (as defined in subsection (e)(5) of such section) shall be disregarded . . . .” Medicaid, in particular, is important for individuals with qualifying disabilities because it covers social services that enable individuals to remain in the community rather than in institutional settings. SSI is also important, and not just as a source of income. In many states, eligibility for Medicaid is pegged to eligibility for SSI, and income and asset limitations apply to both.
As I noted in my prior article about ABLE, one viable interpretation of the statute could be that income contributed to an ABLE account is not countable income when determining an account owner’s eligibility for SSI (which, again, in many states is the key to Medicaid eligibility). Such an interpretation would be in keeping with Congress’s goals for ABLE, one of which was to overcome perverse incentives against savings faced by individuals with disabilities. But the Social Security Administration, in recently released POMS guidance, took a different position. The POMS provides, “[t]he fact that a person uses his or her income to contribute to an ABLE account does not mean that his or her income is not countable for SSI purposes.” So it’s back to the drawing board for individuals like Sarah Wolff, a woman with Down Syndrome who testified before the Senate Finance Committee, “I currently work two part-time jobs, and my employers have been gracious enough to work with me so I do not earn more than seven-hundred dollars a month . . . .” ABLE could have (and I believe it was meant to) provide Sarah with a place to save her extra income so that she could cover her own disability-related expenses and rely less on the government. SSA chose the well-worn path to dependence instead.