Thursday, December 1, 2011

ABLE Accounts and "A Bad Place"

UPDATE -- This post from 2009 had somehow disappeared from the web into "draft" status! I'm glad to retrieve it, because it's time for an update. The Achieving a Better Life Experience (ABLE) Act failed to pass in its 2009 incarnation, but was re-introduced in November as the ABLE Act of 2011. The link is to a widget from Autism Speaks that will help you to contact your federal legislators and ask them to sign on as co-sponsors. Please read the piece below -- it may be familiar, if you're a long-time reader of this blog! -- and then please click and contact. Thanks so much!

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"You're in a bad place."

That's how the lawyer summarized our situation, with regards to saving for Joy's future needs.

Not long after the births of Rose and Joy, we started saving for their future higher education needs, with our state's 529 educational savings plan, a nice tax-exempt way to be saving and planning ahead. We have a relative who has done the same for them in another state, too.

Rose is, pretty obviously, a very good bet for higher education eventually, little human dictionary and all.

With Joy, the educational trajectory has been so confusing. We really have no idea what will be going on with her by the time she finishes school (or the school system finishes with her). Heck, she's only four [update: now she's seven, and we still have no idea!]

But as she gets closer to entering the school system and yet keeps regressing away her various gains, we started to wonder about the wisdom of the 529 accounts for her. The rules of the 529 are clear: you can only use it for higher education expenses. If you take it out for anything else: big honkin' tax hit.

We surely don't want to sell Joy short, but it seems pretty clear that she's going to have some needs beyond the norm as she matures. Those needs may have to do with higher education, but they may not! We don't want our savings for her to be locked into something that's not flexible enough to meet her needs.

That's the situation that sent us to the attorney, to ask about the potential of a special needs trust.

That's the situation he shook his head at, and called "a bad place."

The thing is, a special needs trust isn't designed to be a place for you and other relatives to sock money away incrementally, like the 529 for higher education. The special needs trust is a vehicle where you move a big chunk of change for the later support of a disabled person, and it's highly hemmed around with restrictions to keep unscrupulous folks from using it as a tax shelter when disability isn't really the issue. You need to be very sure you've got an ongoing disability situation before you start down the special needs trust road, and then it's definitely lawyer-business (i.e. attorney's fees) to set up, unlike the 529 that you can do on your own.

But the 529 isn't a great bet for her either, given the uncertainty of her situation. The attorney didn't know what to advise us, except that there weren't any really good options for us.

We were told that federal legislation had been introduced in the past, to create a vehicle similar to the 529 but for expenses related to disability. But it had never managed to go anywhere.

Except that there's been a big election between then and now! [Update: hmm, the 2008 elections didn't manage to make the difference. Maybe there will be some traction as elected officials campaign for 2012?]

And... the legislation has been introduced again, both in the House and Senate, on February 26, 2009. It's called The ABLE Accounts Act of 2009 (ABLE stands for Achieving a Better Life Experience), and the bill numbers are H.R. 1205 and S. 493. [Update: the 2011 version bill numbers, introduced Nov. 15, 2011, are H.R. 3423 and S. 1872]

Here's a summary of the legislation (updated link & summary for 2011):
The ABLE Act -- introduced with bi-partisan support in the House (HR.3423) by Congressman Ander Crenshaw (R-FL) and Congresswoman Cathy McMorris Rodgers (R-WA), and in the Senate (S.1872) by Senators Robert Casey, Jr. (D-PA) and Richard Burr (R-NC)-- would amend Section 529 of the Internal Revenue Service Code to allow individuals with disabilities and their families to deposit earnings to tax-exempt savings accounts. The funds could be used to pay for qualified expenses, including education, housing and transportation, and would supplement, not replace, benefits provided through private insurance, employment or public programs.

And what could it be spent on? Glad you asked...
Qualified disability expenses would include: school tuition and related educational materials; expenses for securing and maintaining a primary residence; transportation; employment supports; health prevention and wellness costs; assistive technology and personal support; and various miscellaneous expenses associated with independent living.

Here is a link to the text of the bill itself (Senate version for 2011, in pdf). One element that I was glad to see: it looks as if one would be allowed to transfer money from an educational 529 into an ABLE account without the tax hit.

[In 2009] the bill was introduced in the House by Ander Crenshaw (R-FL), with co-sponsors Congressmen Patrick Kennedy (D-RI), Cathy McMorris Rodgers (R-WA), and Kendrick Meek (D-FL). In the Senate, it was introduced by Senator Robert Casey (D-PA), Senator Orrin Hatch (R-UT), and Senator Christopher Dodd (D-CT), and co-sponsored by Senators Richard Burr (R-NC), Edward Kennedy (D-MA), and Sam Brownback (R-KS). Update: in 2011, it was sponsored in the Senate by Robert Casey, Jr (D-PA) and Richard Burr (R-NC); in the house by Ander Crenshaw (FL), Chris Van Hollen (D-MD), and Cathy McMorris Rogers (R-WA). Bipartisanship, can you even believe it?!

Please take a moment to drop a note or call to your senators & representative urging them to support/co-sponsor this bill. There's a handy page for generating constituent support letters over at Autism Speaks, or you can look up your elected officials' contact information here and contact them directly.

If you can take a few minutes to do this, that would make us so happy! And you'll have earned the right to come back and brag about in the comments about how you're helping us get to a better place!

Do let me know if you have any questions, either in the comments or via e-mail.


Kia (Good Enough Mama) said...

Oh, I so hope you can find a way to transfer the money for Joy into a more usable account without a major tax hit. I'd click on your links but I'm just a measly Canadian. I'm pretty sure my esignature wouldn't hold water. :(

abcgirl said...

sounds like a great bill. and the online forms worked much more smoothly than anticipated. done and done.

Niksmom said...

Wow, thanks for this information! I've contacted my senators and representative (even had to go to my rep's website to use *his* email form!).

Fingers crossed; this would make such a huge difference to so many people!

Mama Mara said...

Yesterday, I heard someone on NPR say, "Activism is the rent I pay for living on this planet." Thanks for giving me a way to pay my debt!

Anonymous said...

what a great heads up! i'm embarrassed to say that i had no idea about this. i will absolutely pass it on.

thank you!

Quirky Mom said...

I've sent letters, and I hope they help! (Although I suspect that all of my legislators were already supportive of ABLE.) If I can think of something to say about this on my blog, I will add it there as well.

JoyDad said...

Messages sent!!!

Elizabeth Channel said...

How horribly confounding! I'll try to pass on the word (if I can understand it!)

AuntieS said...

Done!! I hope I will get responses back from each person that received my message.

Kirsten Izatt said...

If you save money for a child in a 529 account, and they are deemed disabled as an adult, you may make withdrawals from the account without incurring a penalty. Look at the rules in your plan very carefully.

We often set up special needs trusts for the purpose of owning a 529 plan because gifts to the 529 plan are removed from the estate of the person making the gift.

Kirsten Izatt

JoyDad said...

The penalty is waived in cases where the beneficiary has a disability that precludes college, but everything I've read says that under current rules for 529 plans you're still on the hook for taxes if you use the money for non-qualified expenses, potentially including paying back state taxes on amounts deducted when the contributions were made.

I can see the tax advantage to our estate of having a special needs trust owning a 529 plan and directing the money there after our demise, but how does having the trust own the plan change the tax consequences of using the money for non-qualified expenses?

Anonymous said...

This is great information. I read your post on Fri. and have been trying to research it since then. Curious to get an answer to JoyDad's question...

Anonymous said...

I once had a boss who always made a BIG deal out of my many initials after my name, extending to what I might/should add next.

Notice, no designations as expert in finance, accounting or general law (I did take a disability law course once, 'though.)

Looks to me like the attorney was in a bad place, too, with no way to charge you(!) (Hope he wasn't a relative.)

You have my admiration for looking ahead and trying to figure this out.

Heidi said...

Does anyone have any idea how long this bill will take to come about? Or actually what is the status of this bill. I think this would be wonderful for parents for children with special needs.

JoyMama said...

Heidi -- As of July 17, there are 125 co-sponsors in the House of Representatives (looks like the House bill picked up a few more co-sponsors as recently as July 8). There are 9 co-sponsors in the Senate, the most recent pick-ups there being at the end of April. However, both the House and Senate bills are still sitting in committee, as far as I can tell. I don't have any new information as to what the prospects are.