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The federal Achieving a Better Life Experience Act of 2014, known as the “ABLE Act,” creates a new section of the Internal Revenue Code, 529A, which authorizes Qualified ABLE Programs under which individuals who became disabled prior to age 26 can establish a tax-free savings account and use those funds to pay for a wide range of disability expenses (including education, housing, transportation, 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, etc.). Federal legislation was enacted in December 2014, and each state then became responsible for establishing and operating an ABLE Program or contracting with another state to provide residents with access to a qualified ABLE program.

On April 18, 2016, Governor Wolf signed Senate Bill 879 and enacted the Pennsylvania ABLE Act. Under the Pennsylvania ABLE Act, a savings account can be established by an “eligible individual” (or a fiduciary on his or her behalf), and funds can be saved in excess of the $2,000 asset limit for government benefits qualification. The funds in an ABLE account will be disregarded for purposes of determining eligibility for certain means-tested benefits, such as Medicaid; however, any balance exceeding $100,000 will be countable as resources in determining Supplemental Security Income (SSI) eligibility. While there are additional restrictions with regard to the amounts of both annual and aggregate contributions to these accounts, ABLE accounts will serve as an additional vehicle for disabled individuals to save funds in a tax-efficient manner to provide for their needs. Pennsylvania’s ABLE Act legislation is significant in that it prohibits the state agencies from seeking payback of benefits provided to the beneficiary, which is otherwise provided for by the federal legislation. The federal law expressly authorizes state Medicaid plans to effectively be second “in line” as a creditor of the account (behind outstanding qualified disability expenses, which have first priority), but Pennsylvania’s law protects these account funds from such payback.

Additional legislation is pending to expand the benefits of the ABLE Act on both state and federal levels. Notably, while ABLE account contributions are not tax-deductible for federal income tax purposes, Pennsylvania’s House Bill 1319 would allow account contributions to be income tax deductible for state purposes. Proposed amendments to the federal legislation, which are currently under consideration in Congress, would increase the disability onset age to 46 years old; allow the working disabled to contribute more annually than the current limit of the annual gift-tax exclusion amount (currently $14,000); and permit 529 college savings plans to be rolled over into an ABLE account. The Pennsylvania Treasury Department is actively taking steps to establish the program and make ABLE accounts available as soon as possible, at which point additional documentation and rules regarding the program will be made available to the public.