CalABLE Savings Accounts for Persons with Disabilities Will Soon Be Available in California
October 15, 2017
The California State Treasurer’s Office is finalizing the details of the CalABLE Savings Account program and anticipates it will be open for business by early winter 2018. CalABLE is a new program that allows persons with disabilities to open a savings account without jeopardizing public benefits such as Supplemental Security Income (SSI). In order to remain eligible for many means tested government benefits programs such as SSI, a person with a disability cannot have more than $2000 in assets at any given time. Over the course of a lifetime SSI benefits can exceed $500,000 making it a vital resource worth protecting.
The CalABLE Savings Account program is the result of the ABLE Act which was enacted by Congress in December 2014. ABLE stands for the “Stephen Beck Jr. Achieving a Better Life Experience Act”. The goal of the ABLE Act was to allow people with disabilities the option of opening a savings account where the funds will not be considered as resources for purposes of means tested government benefits provided certain criteria are met. Under the ABLE Act each state has the option of establishing an ABLE savings account program modeled after 529 College Savings Account programs. As of March 1, 2017, only 18 states had finalized ABLE account programs but many states like California are in the process of doing so.
Only persons whose disability began prior to the age of 26 can qualify to participate in the ABLE account program. Once this requirement has been met the person with the disability, a parent, a guardian or conservator, or an agent for the person as designated in a power of attorney can open the account. Deposits to an ABLE savings account can be made by anyone however no more than $14,000 per year total can be deposited into the account.
The funds in an ABLE account grow tax free and withdrawals are not taxed provided the withdrawals are used for “qualified disability expenses” as defined by federal law. Examples of qualified disability expenses include, but are not limited to, costs associated with education, transportation, assistive technology, job related training and medical or health related expenses. Withdrawals from an ABLE account that are not used for qualified disability expenses are subject to regular income tax plus an additional 10% tax penalty and could be considered as income for purposes of SSI eligibility.
Recently, Governor Brown signed legislation that will allow California residents participating in the CalABLE program the ability to save to their full potential and to leave to their loved ones the balance remaining in their CalABLE account at the time of their death. The first legislation (SB 218) makes California the third state in the country after Pennsylvania and Oregon to protect CalABLE accounts from Medicaid repayment also known as the “payback” requirement. Specifically, a California resident’s CalABLE account will not be subject to recovery by Medi-Cal at the time of the beneficiary’s death. The second legislation (AB 384) makes CalABLE a national program which allows non-California residents to open a CalABLE account. Greater participation in the program will serve to lower program fees and costs over time. AB 384 also clarified that consistent with Federal law, CalABLE account holders can save more than the $100,000 cap that exists in state law for state and local means–tested programs without jeopardizing eligibility to Medi-Cal.
There is a maximum lifetime cap for contributions to an ABLE account. The lifetime cap varies from state to state and is typically tied to each state’s maximum amount for regular 529 College Savings Accounts. Currently, for California the maximum lifetime cap for contributions to a 529 College Savings Account is $475,000 per beneficiary. The CalABLE Savings Account program has not yet published the maximum lifetime cap for contributions in California but is expected to do so when the program opens for business.
Although an ABLE savings account can serve as a useful financial tool for persons with disabilities it should not be considered as a replacement for a Special Needs Trust. Unlike the ABLE accounts, Special Needs Trusts do not require the onset of the disability to occur before age 26, they have no annual or lifetime caps for contributions and there are few limits on how or where the funds in a Special Needs Trust are spent.
An ABLE account may be best suited for those persons who do not have the financial resources to set up and fund a Special Needs Trust or for those persons who wish to supplement their Special Needs Trust assets with a separate savings account. Another circumstance where an ABLE account may be appropriate is when a person with a disability has a part time job but does not want to jeopardize SSI eligibility. Up to $14,000 of earned income each year could go into the account without affecting SSI eligibility and benefits.