With his signature, the president has paved the way for people with disabilities to open tax-free savings accounts where they can amass more than $2,000 without losing government benefits.
President Barack Obama signed the Achieving a Better Life Experience, or ABLE, Act Friday before leaving Washington for the holidays.
The new law will allow people with disabilities to open special accounts where they can save up to $100,000 without risking eligibility for Social Security and other government programs. What’s more, individuals can keep their Medicaid coverage no matter how much money is accrued in an ABLE account.
Modeled after 529 college savings plans, interest earned on savings will be tax-free. Funds accrued in the accounts can be used to pay for education, health care, transportation, housing and other expenses.
To be eligible, individuals must have a condition that occurred before age 26 and each person may only open one ABLE account. Under current gift-tax limitations, as much as $14,000 could be deposited annually.
People with disabilities may be able to start opening ABLE accounts as soon as 2015. However, some hurdles remain. While the new law alters federal rules to allow for ABLE accounts, each state must now put regulations in place — much as they have done for other types of 529 plans — so that financial institutions can make the new offering available.
“We can’t mandate that a state will create a 529, but given the lobby that we’ve seen, I think by the end of next year, I think we’ll see this in every state,” Sen. Richard Burr, R-N.C., one of the measure’s chief sponsors, said on a recent call with reporters.
The law’s name was amended in recent weeks to honor Stephen Beck, Jr., a longtime proponent of the bill who died unexpectedly in early December.