Background

The ABLE Act amended the Internal Revenue Code of 1986 to create section 529A (“Qualified ABLE Programs”), permitting states to establish ABLE programs within which people with disabilities can open accounts that will generally be exempt from taxation. The purpose of the ABLE Act is to permit people with disabilities to save money in and withdraw funds from their ABLE accounts to pay for disability-related expenses, in support of their efforts to maintain health, independence and quality of life. The law states that ABLE accounts should “supplement, but not supplant” benefits available to ABLE account beneficiaries under Medicaid, the Supplemental Security Income program (SSI), and other programs.

Eligibility to participate in a qualified ABLE program

Section 103 applies to individuals who have an ABLE account in a qualified ABLE program. Eligibility for an ABLE account is open to an individual of any age who has blindness or a disability, provided, however, that the individual’s blindness or disability occurred before the age of 26. An individual is permitted to have only one ABLE account. The individual may open the account in the program of the state of which the individual is a resident, or in another state’s ABLE program. The determination of eligibility for an ABLE account is the responsibility of the ABLE program in which an individual seeks to establish the account.

Under section 102(a) of the ABLE Act (codified at 26 U.S.C. §529A(e)), an individual is eligible for an ABLE account if the individual is receiving SSI or Social Security Disability Insurance (SSDI) benefits based on a disability or blindness that occurred before age 26. Alternatively, an individual (or a parent or guardian acting on the individual’s behalf) may establish eligibility by filing a disability certification (and obtaining a signed physician’s diagnosis) with the qualified ABLE program indicating that the individual has a medically determinable impairment meeting certain criteria that occurred before age 26. However, while sufficient to establish eligibility to participate in an ABLE program, section 102(a) of the ABLE Act provides that “no inference” may be drawn from a disability certification for purposes of establishing eligibility for Medicaid.

Contributions to ABLE accounts

Contributions by a third party

For MAGI and SSI-based eligibility determinations, under section 103, third party contributions to an ABLE account are disregarded in determining Medicaid eligibility. This is different from the treatment of such contributions in determining financial eligibility using SSI-based methodologies and, in narrow circumstances, different from the treatment of such contributions under MAGI-based methodologies.

Under SSI-based methodologies, applied to most non-MAGI eligibility groups, money contributed by a third party to an account which an individual can access generally is considered countable income in the month in which the contribution is received and, if not spent, a resource in the month following. Per section 103, however, third party contributions to an ABLE account are not either counted as income or included in total resources of the account beneficiary.

Some ABLE account beneficiaries may also be a beneficiary of a special needs trust (SNT) or pooled trust, as described in section 1917(d)(4) of the Act. Distributions from such trusts made on behalf of the trust beneficiary to the beneficiary’s ABLE account should be treated the same as contributions to ABLE accounts from any other third party. While disbursements from an SNT or pooled trust can be considered in some circumstances as income to the trust beneficiary, disbursements from an SNT or pooled trust to the ABLE account of the trust beneficiary are not counted as income under section 103. Therefore, states should disregard as income a distribution from an SNT or pooled trust that is deposited into the ABLE account of the SNT or pooled trust beneficiary.

Contributions by the ABLE account beneficiary

Designated beneficiaries of an ABLE account can contribute their own income or resources to their ABLE account. If an ABLE account beneficiary transfers some of his or her own (otherwise countable) resources to his or her ABLE account, the effect would be a corresponding reduction in total countable resources. By contrast, if a beneficiary of an ABLE account transfers some of his or her income in the month received to his or her ABLE account, the effect would not be a reduction in countable income. This is because how an individual uses income generally does not change its designation as income at the point of its receipt, and there is nothing in the ABLE Act that supersedes this general rule.

Contributions by third parties who apply for Medicaid

A third party who has contributed to an ABLE account of someone else may apply for Medicaid and seek coverage of long-term services and supports (LTSS). Section 103 of the ABLE Act does not provide for any special treatment of contributions made to an ABLE account benefiting another person. For example, a contribution from a grandfather to the ABLE account of his grandchild, whether from the grandfather’s income or resources, would constitute a transfer of assets from the grandfather to his grandchild’s account. The transfer may need to be evaluated under the requirements in section 1917(c)(1) of the Act (depending on when the transfer occurred), if the grandfather subsequently seeks Medicaid coverage of LTSS. The amount transferred by the grandfather to his grandchild’s ABLE account would not be an exempt transfer by virtue of section 103 in the determination of the grandfather’s eligibility for Medicaid coverage of LTSS.

Distributions from ABLE accounts

Like funds in and contributions to ABLE accounts, distributions from ABLE accounts are not included in the beneficiary’s taxable income or counted as income in eligibility determinations for federal programs such as Medicaid as long as they are used for “qualified disability expenses” (QDEs). Section 529A(e)(5) of the Internal Revenue Code broadly defines QDEs as any expenses related to the eligible individual’s blindness or disability which may include, but are not limited to, expenses incurred for education, housing, transportation, employment training and support, and assistive technology.

Treatment of distributions exceeding QDEs for non-MAGI determinations

For individuals whose financial eligibility is determined using SSI-based methodologies, receipt of cash from a resource, whether the resource itself is counted or excluded, generally is not considered to be income, but rather the conversion of a resource from one form to another. The protection afforded under section 103, however, does not require that distributions from an ABLE account be used within the month the distribution is made, or within any particular timeframe. Accordingly, a distribution from an ABLE account may be countable as a resource only if (1) it is retained beyond the month in which the distribution is made and (2) it is used for something other than a QDE in that or a subsequent month. Section 103, then, means that ABLE account distributions retained after the month of receipt are disregarded unless used for a non-qualifying expense.

For example, if an SSI-based individual receives an ABLE account distribution in August, but does not spend the distribution until December (and uses the distribution for a QDE in that month), the amount of the distribution is not counted in any month. If the individual uses the distribution in December for a non-QDE, the distribution would be counted as a resource in the month of December.

Post-eligibility treatment of income

Typically, all income is taken into account for purposes of post-eligibility treatment of income (PETI), including types or amounts of income that are not counted in making an initial eligibility determination. Distributions from an ABLE account that are used for a QDE, however, are disregarded when determining countable income for purposes of PETI.