A chieving a B etter L ife E xperience

1. The ABLE Account Act of 2009H.R. 1205 and S. 493 Achieving aBetter Life Experience

2. I. What Is an ABLE Account?

3. Overview of ABLE Accounts • An ABLE Account is an account established by or on behalf of an individual with a disability for the purpose of saving for life’s necessities, many of which Medicaid does not cover. • The assets in an ABLE Account can only be used to pay for qualified expenses, such as education, housing, employment support, health, transportation, and other life necessities. • The income earned on amounts contributed to an ABLE Account is tax exempt, so ABLE Accounts grow tax free. • The assets held in an ABLE Account are not counted for purposes of determining the individual’s eligibility to qualify for Medicaid and Supplemental Security Income.

4. II. The Need for ABLE Accounts

5. Various Programs Encourage Americans to Save • The federal government encourages Americans to save with a variety of tax-advantaged savings accounts. • Individual Retirement Accounts: including traditional, Roth, and nondeductible IRAs • Education Savings Accounts: Section 529 Qualified Tuition Plans, Coverdell Education Savings Accounts • Medical Savings Accounts: Archer Medical Savings Accounts, Health Savings Accounts • Employer Savings Accounts: 401(k) plans, SIMPLE 401(k) plans, Thrift plans, charitable 403(b) plans, governmental 457 plans

6. Medicaid/SSI Means Tests • In order to live independently, many individuals with disabilities must rely on the services provided by programs such as Medicaid; Supplemental Security Income (SSI); Social Security Old Age, Survivors, and Disability Insurance (OASDI); and Medicare. • Yet in order to qualify for Medicaid/SSI, individuals with disabilities generally may not have more than $2,000 of countable assets. Earnings of more than the substantial gainful activity (SGA) level can also affect eligibility for these programs. • The monthly SGA level for 2009 is $980 for people with disabilities and $1,640 for people who are blind. • If the families of individuals with disabilities provide financial assistance or “in-kind” support to their disabled family members the individual with a disability may be disqualified from receiving these essential benefits or have their cash benefits reduced.

7. Medicaid/SSI Means Tests Prevent Individuals with Disabilities from Saving • As a result of the Medicaid/SSI means tests, • Individuals with disabilities are discouraged from participating in meaningful work because, for the most part, they cannot save their earnings above the asset limits. • Families are often discouraged from providing financial support to family members with disabilities because, if families are not careful, such support may cause the individual with a disability to be disqualified from Medicaid/SSI. • Individuals with disabilities (who do not have financial planning vehicles such as third party special needs trusts or pooled trusts) must spend those assets they do acquire, such as small inheritances or wages, in order to remain qualified for Medicaid/SSI. • Without the benefit of saving their assets, individuals with disabilities are often forced to live in dangerous areas or substandard conditions. • See “Priced Out in 2008: The Housing Crisis for People with Disabilities,” by Technical Assistance Collaboraive, Inc., Consortium for Citizens with Disabilities Housing Task Force.

8. III. Case Studies • The following slides show how individuals with disabilities would benefit from ABLE Accounts.

9. Amy and Jack 9

10. What Would You Do with an ABLE Account? Amy and Jack are brother and sister. They live outside of Boston with their parents. When Amy was born, her parents opened a §529 account to save for her college education. Three years later, when Jack was born they opened a §529 account for him as well. Jack is eventually diagnosed with autism spectrum disorder. His disability requires intensive support at home and in the community. How would Amy and Jack’s family utilize an ABLE Account? Money that Jack’s parents have been saving in his §529 plan can be transferred to his ABLE account. Because of the severity of his disability, Jack will need support for the remainder of his life. Funds set aside in the ABLE account will provide financial support to Jack for housing, transportation, general living expenses and medical care. Just like his sister Amy’s §529 plan, the growth on his ABLE account funds will not be taxed. Jack’s sister Amy can go to college, live her life, enjoy her brother and not worry about being his sole source of private financial support after their parents are gone. 10

11. Aaron and Julia

12. What Would You Do with an ABLE Account? • Aaron and Julia both have down syndrome. Aaron is 37, and Julia is 35 years old. They are engaged. • Aaron and Julia live in Santa Rosa, CA, in an apartment building for individuals with special needs. • Aaron and Julia have worked in a variety of sheltered environments for individuals with special needs, including a local coffee shop, a recycling plant, and a workshop where they help assemble American flags. • Medicaid/SSI provide Aaron and Julia with in home care support assistants who help them get to work, go to the doctor, cook and clean, and attend educational and social activities. • How would Aaron and Julia use the money in an ABLE Account? [Note: each state’s Medicaid program varies as to what expenses it covers.] • Go to the dentist. California’s Medicaid program covers one teeth cleaning a year, but dentists recommend getting two cleanings. CA Medicaid also doesn’t pay for dental crowns. • Join a health club. CA Medicaid doesn’t cover exercise or other preventative health programs. • Get a hearing aid. CA Medicaid doesn’t cover hearing aids for the partially hearing impaired. • Replace a pair of lost glasses. CA Medicaid’s vision benefits are very limited. • Go on a honeymoon. CA Medicaid/SSI does not allow individuals with disabilities to save enough money to take a vacation.

13. IV. Technical Specifications of ABLE Accounts

14. ABLE Account Eligibility • An ABLE Account may be established for or by any individual with a disability, including: • An individual who has received a determination that he or she is eligible to receive SSI or OASDI disability benefits due to blindness or disability under Titles XVI or II of the Social Security Act. • An individual who would be eligible under the above test, notwithstanding: • The fact that no determination has been made with respect to his or her eligibility to receive these benefits; and • The fact that the individual would otherwise fail the income and assets test or the substantial gainful activity test.

15. Establishing Eligibility • Unlike the cumbersome process for establishing eligibility for SSI or OASDI disability benefits with the Social Security Administration, an ABLE Account would be established by filling out a tax form. • The U.S. income tax is a self-enforcement system. Taxpayers routinely certify their income, deductions, credits and tax status under penalties of perjury. • For example, to obtain the disabled tax credit, taxpayers file Schedule 3 of the Form 1040-A and file a doctor’s certification. The same procedure could be used to establish an ABLE Account. • To establish eligibility for an ABLE Account, the tax form would include a statement certified by a doctor that the individual has a disability at a level that would make him or her eligible under the SSI or OASDI disability programs notwithstanding the means tests or substantial gainful activity test.

16. Opening an ABLE Account • An ABLE Account is a custodial account or trust created or organized in the United States whose beneficiary is an individual meeting the eligibility requirements. • Typically, ABLE Accounts would be custodial accounts held at national banks and would be as easy to open as an ordinary savings account. • A custodial account is a contract in which a bank agrees to hold and invest funds on behalf of a third party, such as a minor or individual with a disability. The custodian of a custodial account is authorized to make decisions about the account if the beneficiary of the account is unable. • If the ABLE Account is a trust rather than a custodial account, the trustee can be a bank, a parent or guardian of the designated beneficiary, the beneficiary him- or herself (provided the beneficiary is capable of fulfilling that role), or a third-party appointed by the beneficiary (or his or her parents).

17. Qualified Expenses • “Qualified disability expenses” are any expenses that are made for the benefit of the beneficiary of the ABLE Account, to the extent provided under Treasury Regulations. Such expenses will include: • Education—including tuition for preschool thru post-secondary education, books, supplies, and educational materials related to such education, tutors, and special education services. • Housing—including rent, mortgage payments, home improvements and modifications, maintenance and repairs, real property taxes, and utility charges. • Employment Support—including expenses related to obtaining and maintaining employment, including job-related training, assistive technology, and personal assistance supports. • Health—including premiums for health insurance, medical, vision, and dental expenses, habilitation and rehabilitation services, durable medical equipment, therapy, respite care, long term services and supports, and nutritional management. • Transportation—including the use of mass transit, the purchase or modification of vehicles, and moving expenses. • Other Life Necessities—including clothing, activities which are religious, cultural, or recreational, supplies and equipment for personal care, community-based supports, communication services and devices, adaptive equipment, assistive technology, personal assistance supports, financial management and administrative services, expenses for oversight, monitoring, or advocacy, funeral and burial expenses.

18. Contributions to ABLE Accounts • Contribution Cap. • Individuals with a disability, their families, their employers, and any other person wishing to contribute assets for the individual with a disability, may contribute up to $500,000 to an ABLE Account for that individual until the individual reaches the age of 65. • The cap is adjusted for inflation annually. • Once the cap has been reached, the ABLE Account cannot receive additional contributions, but the assets in the ABLE Account may continue to grow. • Any excess contributions (and earnings attributable to them) would be subject to a six percent excise tax.

19. Tax Deduction for Contributions • The beneficiary of an ABLE Account would be eligible for a tax deduction equal to 50% of his or her annual contributions to the account. • The deduction is capped at $2,000 per year. • The deduction is also subject to a phaseout at higher income levels ($35,000 for individuals, $52,500 for heads of household, and $70,000 for joint filers). • Other contributors to the ABLE Account are not entitled to a tax deduction for contribution to the account.

20. Tax Treatment of ABLE Accounts • The earnings of the assets held in an ABLE Account are not subject to federal income tax while they remain in the Account. • Withdrawals from an ABLE Account are tax-free to the extent that those funds are used to pay the beneficiary’s “qualified disability expenses.” • Withdrawals from an ABLE Account that are not for qualified expenses are taxable to the beneficiary. • Specifically, if the annual withdrawal from an ABLE Account exceeds the beneficiary’s annual qualified disability expenses, a portion of the withdrawal is subject to income tax plus an additional 10% excise tax. • The taxable portion of the withdrawal represents the interest earned on assets in the ABLE Account.

21. Rollovers • Certain IRAs, Health Savings Accounts, and Education Savings Accounts may make rollover distributions to ABLE Accounts without incurring penalties. • The assets of one ABLE Account may be rolled over to another ABLE Account for the benefit of the same beneficiary (or his or her disabled family members) without tax. • The rollover amount must be deposited into the new ABLE Account 60 days after it is distributed. • The designated beneficiary of an ABLE Account may be changed without incurring tax, provided that the new beneficiary is a member of the earlier beneficiary’s family and meets the eligibility requirements.

22. Gift Tax Treatment of Contributions • A contribution made to an ABLE Account on behalf of a designated beneficiary is considered to be a completed gift, which is eligible for the annual gift tax exclusion. • If the donor’s contributions in a particular year exceed the amount of the gift tax annual exclusion, the donor may elect to spread the contribution over a five-year period for gift tax purposes.

23. Medicaid Payback • In the event the qualified beneficiary dies (or ceases to be an individual with a disability): • The assets in the ABLE Account are first distributed to any State Medicaid plan that provided medical assistance to the designated beneficiary. • The amount of any such Medicaid payback is calculated based on amounts paid by Medicaid after the creation of the ABLE Account. • After the Medicaid payback, any remaining assets in the ABLE Account would be distributed pursuant to the beneficiary’s estate and a portion of such amounts would be subject to tax.

24. Other Financial Planning Vehicles • ABLE Accounts are not intended to replace special needs trusts (individual or pooled) as an option for financial planning. ABLE Accounts provide an alternative to special needs trusts and could be utilized by a lower-income demographic. • Like ABLE Accounts, the assets held in individual or pooled special needs trusts can be exempt from the Medicaid/SSI means tests. • Unlike ABLE Accounts, individual or pooled special needs trusts are not subject to a contribution cap, so they can be unlimited in size. • Unlike ABLE Accounts, which are tax-exempt, individual or pooled special needs trusts are taxable trusts. • Special needs trusts pay tax at the highest marginal tax rate (e.g., 35%). They also can be expensive to set up and to administer, and they are not easily portable to states outside the state of their creation. • Unlike ABLE Accounts, those individual or pooled special needs trusts that are “third party” trusts, meaning the assets of the trust do not belong to the disabled beneficiary, and therefore are not subject to Medicaid payback provisions.

25. V. Sponsors

26. ABLE Accounts: A Bipartisan, Bicameral Initiative • The following Representatives introduced H.R. 1205 in the House of Representatives: • Crenshaw (R-FL), • Meek (D-FL), • Kennedy (D-RI), and • McMorris Rodgers (R-WA) • The following Senators introduced S. 493 in the Senate: • Casey (D-PA), • Hatch (R-UT), • Dodd (D-CT), • Brownback (R-KS), • Burr (R-NC), and • Kennedy (D-MA).

27. Organizations Supporting the ABLE Act • APSE • The Arc of the United States • Association of University Centers on Disabilities (AUCD) • Autism Society of America • Autism Speaks • Center for Outcome Analysis • Center for Self-Determination • Consortium for Citizens with Disabilities Asset Development Task Force • Collaboration to Promote Self-Determination • Down Syndrome Association of Northern Virginia • Easter Seals • National Association of Councils on Developmental Disabilities • National Association of State Directors of Developmental Disabilities Services (NASDDDS) • National Fragile X Foundation • National Disability Institute • National Down Syndrome Congress • National Down Syndrome Society • TASH • TecAccess • United Cerebral Palsy • World Institute on Disability

28. Contact Information • For more information, please contact: • Senator Casey’s office: Bryn McDonough, 202-224-6324 • Congressman Crenshaw’s office: Dustin Krasny, 202-225-2501