Utah's Future ABLE Account Questions

The Utah Educational Savings Plan (UESP) has received questions about new state and federal legislation that allows disabled individuals to save for future qualified disability expenses. The purpose of these FAQs is to provide information about this new legislation and how it may affect Utah residents and UESP account owners.

The Utah State Legislature passed the Achieving a Better Life Experience (ABLE) Act in 2015, authorizing the implementation of a plan that will allow eligible disabled and blind Utah residents to set up savings accounts for disability-related expenses without risking eligibility for Supplemental Social Security Income (SSI) benefits. The ABLE plan Utah will implement is authorized by Section 529A of the Internal Revenue Code of 1986, as amended (Section 529A).

Although there are important differences, ABLE accounts are modeled after tax-advantaged 529 college savings plan accounts such as UESP accounts. As with 529 accounts, contributions to ABLE accounts are made on an after-tax basis. Earnings grow tax-deferred and are tax-free if used for qualified disability expenses.

Pursuant to Section 529A, each state is responsible for establishing and maintaining its ABLE program. The Utah Department of Workforce Services (DWS)—not UESP—will administer the Utah ABLE program. DWS is studying how to implement the Utah ABLE law. Utah residents will not be able to open ABLE accounts until the study is complete and DWS implements the Utah plan.

Here are some answers to common questions about ABLE accounts:

Who can be the beneficiary of an ABLE account?

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A beneficiary of an ABLE account must be an eligible individual, which means an individual whose disability has been certified by the U.S. Secretary of the Treasury, or who meets the definitions of disability or blindness under the Social Security Disability Insurance or Supplemental Security Income programs. In either case, the blindness or disability must have occurred before age 26.

 

Who can be the owner of an ABLE account?

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Federal regulations require the owner of an ABLE account to be the beneficiary of the account.

This requirement differs from 529 college savings plan rules, which allow an adult with a U.S. Social Security or U.S. Taxpayer Identification Number to be an account owner.

A beneficiary may not own more than one ABLE account.

 

Who can contribute to an ABLE account?

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The account owner, as well as friends and family members, can contribute to an ABLE account. Contributions are limited, however, to the annual gift tax exclusion for individual taxpayers, which is currently $14,000 per year.

 

How does an ABLE account work?

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Contributions are made on an after-tax basis (after taxes have been deducted from the contributor’s taxable income).

Earnings accumulate tax-deferred in the ABLE account. Earnings are tax-free if withdrawn for qualified disability expenses.

 

What are qualified disability expenses?

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Qualified disability expenses include any expenditures made for the benefit of an eligible individual that are related to the individual’s blindness or disability.

Examples of qualified disability expenses include education, housing, transportation, job training and support, assistive technology and personal support services, health services, preventive care, wellness programs, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial costs. The Treasury Department may also allow other expenses that are consistent with the purposes of Section 529A.

 

How much can be contributed annually to an ABLE account?

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An ABLE account can only receive total contributions of $14,000 per year, which is the amount of the annual federal gift tax exclusion. Individuals, however, may contribute to any number of ABLE accounts as long as the total annual contributions into each account do not exceed $14,000.

The maximum balance for a Utah ABLE account cannot exceed $416,000 or whatever the maximum balance amount is for UESP in any year.

 

Must I live in Utah to open a Utah ABLE account?

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No. The Protecting Americans from Tax Hikes (PATH) Act of 2015 removed the “home state” residency requirement that was previously contained in the federal ABLE Act. ABLE programs will now be open to eligible individuals regardless of which state the account owner lives in. This means that an eligible individual will be able to open an account with any ABLE plan that is offered to the public.

 

Are tax incentives available if I open a Utah ABLE account?

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Yes. A Utah taxpayer who contributes to an ABLE account can claim a 5 percent Utah state income tax credit on his or her annual contribution.

Note: The Utah tax credit goes to the Utah contributor, regardless of whether the contributor is also the account owner.

 

Are there consequences for using ABLE account funds for nonqualified expenses?

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Yes. Account earnings used for nonqualified disability expenses are subject to federal income tax and an additional 10 percent federal tax penalty. Utah residents may also be exposed to Utah state income tax and may be required to repay any previously claimed Utah state income tax credits.

These consequences do not apply to withdrawals made after the beneficiary dies.

 

After a beneficiary dies, can a state claim funds in an ABLE account to pay for past Medicaid expenses (i.e. “Medicaid recapture”)?

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Yes. After a beneficiary dies, funds in an ABLE account may be used to pay any outstanding qualified disability expenses (including funeral and burial expenses) of the beneficiary. Once those qualified disability expenses are paid, any remaining amounts in the ABLE account may be claimed by the state to reimburse Medicaid expenses. This is also referred to as Medicaid recapture. The state is entitled to be reimbursed for all Medicaid assistance paid on behalf of the beneficiary after the ABLE account was established. Such amounts are subject, however, to a credit for any Medicaid premiums paid from the account or paid “by or on behalf of the beneficiary” to a Medicaid Buy-In program.

 

How many ABLE accounts can I own?

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Utah and federal regulations permit only one ABLE account per eligible individual. In contrast, regulations permit a UESP 529 college savings account owner to own multiple accounts for the same beneficiary as long as each account has a different investment option, and an individual may be the beneficiary of multiple 529 college savings accounts with different owners.

 

Do my ABLE account savings affect my eligibility for federal disability benefits?

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The first $100,000 in an ABLE account will not affect SSI benefits.

If the ABLE account balance exceeds $100,000, the beneficiary’s SSI benefits will be suspended but not terminated.

 

Can I roll over or transfer my UESP college savings account into an ABLE account?

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No. A withdrawal from a 529 college savings account to fund an ABLE account would not be deemed to be a qualified college savings withdrawal at this time and thus would be subject to all the applicable taxes and penalties of a nonqualified college savings withdrawal. See the UESP Program Description for more information.