House Approves Tax-Free Disability Savings Accounts

[Jefferson23]

By Michelle Diament

December 4, 2014

The U.S. House of Representatives has voted to approve a bill that would establish a new way for people with disabilities to save money without risking their government benefits.

The Achieving a Better Life Experience, or ABLE, Act passed by a vote of 404 to 17 on Wednesday. The measure will now move to the Senate.

Under current rules, many individuals with disabilities can have no more than $2,000 in assets in order to qualify for needed government benefits. The ABLE Act would dramatically alter that scenario, allowing people with disabilities to establish special accounts at any financial institution where they could save up to $14,000 annually under current gift-tax limitations.

The accounts could accrue $100,000 without jeopardizing eligibility for Social Security and other government programs. Meanwhile, the legislation ensures that those with disabilities can retain Medicaid coverage no matter their ABLE account balance.

http://www.disabilityscoop.com/2014/12/04/house-approves-accounts/19891/

[merrily]

1. Two major government programs for the disabled, one is welfare and the other is Social Security.

People often conflate the two.

The requirement for Social Security disability is having worked a certain number of quarters, period (and, of course, being disabled). You can be as rich as Croesus or as poor as a church mouse. It doesn't matter. It's irrelevant. You can lose Social Security disability benefits if you are able to work because if you are able to work, you don't meet the definition of disability. However, you can have passive income from, say, gifts or rent that you collect up the yin yang and still receive Social Security. And you can also save up the yin yang without losing your Social Security benefits. So, the $2000 in assets bit does not apply to Social Security.

So, this would seem to be about welfare. But, who on welfare can save $14,000 a year? Most people can't even save that much while working two jobs. If you are truly disabled and truly financially qualified for welfare, how many thousands you can bank a year is not exactly your biggest worry.

So, is this really working toward making Social Security more like welfare? Meaning, is this a step toward making Social Security needs based and getting away with it?

[Jefferson23]

2. I don't know what you mean by getting away with it?

How to Qualify for an ABLE Account:

Any individual who is receiving, deemed to be, or treated as receiving supplemental security income benefits or disability benefits under Title II of the Social Security Act.

OR
Any individual who has a medically determined physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 month or is blind, and provides a copy of their diagnosis signed by a physician.
No one who qualifies for an ABLE account is able to use that eligibility to secure supplemental security income benefits or Medicaid.

Federal Treatment of ABLE Account under Supplemental Security Income Program:
When the assets in an ABLE account reach $100,000, if the beneficiary is receiving Supplemental Security Income (SSI) benefits, any monthly SSI benefits will be placed in suspension
If the assets in the ABLE account drop back below $100,000, the SSI benefit suspension ceases and any SSI benefit resumes
The beneficiary will not have to reapply for SSI benefits once the account drops back below the $100,000 threshold

The ABLE Act in the 112th Congress - One Page Summary Sheet (.doc)
http://www.realeconomicimpact.org/public-policy/able-act.aspx

[merrily]

3. A first step by govenment toward changing Social Security Disablity to a needs based

program and government's getting away with that first step.

What did you think I meant, because I don't know what it is about my statement that you are questioning.

(SSI is not Social Security Disability. It is a needs based welfare program. Social Security Disability is not needs based, not yet, anyway.)

[Jefferson23]

4. I was not sure what you meant, that's why I asked...thanks. n/t

[kelly1mm]

5. Gifts. Transfers from parents/siblings can be made from the parents/siblings

to the disabled up to a certain amount per year/per transferee/ per transferor (IIRC 12k?). Now, if those gifts are not structured correctly, they can lose their government benefits till they spend down the gifts. This would allow them to put up to 14k per year (total) of gift (or other income) into an account that would not otherwise jeopardize their government benefits.

[merrily]

6. Yes, but the change should not affect Social Security disability, only SSI.

With Social Security disability (aka Old Age, Surviviors and Disability Insurance, or OASDI) you are collecting insurance from a fund you paid into for a minimum number of quarters. With OASDI, you are not getting financial aid based on need, as you are with SSI.

When you buy insurance, it's not your insurance company's business what other income or assets you have. Similarly, OASDI has never penalized, or even quizzed, recipients around gifts, rents, etc or any kind of income, except wages--and then only because they don't consider you totally disabled if you can earn a certain amount of money per month. If you are not totally disabled, you are, by definition, not entitled to disability insurance. (They do allow a minimal amount of earnings without kicking you off the program, but not much.) A private disability insurer would do the same, i.e., stop paying disability benefits if you can work

The OP article seems to be saying this is about both OASDI disability and SSI, but OASDI has never penalized you for gift or any income besides wages that you earn, certainly not for what you save or bank. So why is OASDI even being mentioned in connection with these changes? That is my only point.

[kelly1mm]

7. Ok, sorry, I misunderstood. I also agree, this does not effect OASDI and to mix the two

creates confusion as to the problem they are actually trying to fix.

[merrily]

8. The tax free part would, I believe (but am not sure) would be new for OASDI

recipients. Again, I am not sure, but I don't think they got that kind of tax break in the past. But the business about $2000 in assets and how much you are allowed save does not seem to apply to OASDI.

[kelly1mm]

9. Gifts (of any amount) are not taxable as income to the recipient. The giver, depending on the

amount may have to file a gift and estate tax return and 'use up' part or all of their lifetime exclusion form the estate tax.

I believe that what the 'tax free' part is that any interest from this account will not be taxable as interest. The 'problem' with that is it is VERY unlikely that these people (SSI) would have any income tax liability as there income on a 100,000 account would not be enough to generate a tax liability.

Perhaps THAT is why OASDI recipients are included? The interest on those people COULD be taxable if not 'sheltered'?

Maybe that is why after all ......

[merrily]

10. I guess. As I said, I just hope this is not a step toward collapsing the two programs

into one needs-based welfare program. The more they treat the two programs the same, the more I am going to fear that.

[Darb]

11. Is a "gift" tax free to the giver?

This sounds like a Trojan horse of some sort, or a redirection. Who on disability can save money? What percentage of people who qualify, which basically means they are not able to work for 12 months at least, would have any money left to put into this account?

If you are not making any income, ie disabled, then how is tax free INCOME going into savings going to help you?

Sounds like more money for banks and wall street that helps nobody else.

Republicans do not do anything to help anyone but the rich. Democrats voting for this are probably just bamboozled.