Is a Louisiana ABLE Account Right For You?
The Louisiana ABLE Account is a new opportunity for individuals with disabilities and their families to save for the future. Normally, you can’t have more than $2,000 in savings without losing eligibility for benefits like SSI and Medicaid. The only way to save more was with a Special Needs Trust. Now with the passage of the Achieving a Better Life Experience (ABLE) Act, we have a simpler option.
ABLE accounts do not replace Special Needs Trusts, but they do give individuals with disabilities and their loved ones an additional tool to work with. ABLE accounts are easy to set up, and offer tax benefits as well. Many families can benefit by including an ABLE account as part of their Special Needs Planning.
Since Louisiana passed its version of ABLE Act in 2014, we have been waiting for word on when Louisiana ABLE accounts would become available. While we wait, other states’ ABLE accounts have come online. Some states allow people who do not live in that state to open an ABLE account there. Just like choosing a bank for your checking account, you can choose which state you want to hold your ABLE account. Many of us have been waiting to see what Louisiana’s program will look like before we decide where to open an account.
While the Louisiana program has not released final details yet, they have published a set of draft administrative rules. (You can read the proposed rules here.) This is only a draft document, so the rules are subject to change. There are still a few typos. Nonetheless, it gives us a decent idea of what to expect.
Do you have to live in Louisiana to open a Louisiana ABLE Account?
Yes. To enroll in the Louisiana program, either the individual with a disability or their authorized representative must reside in Louisiana.
Is there a Louisiana income tax benefit for contributing to a Louisiana ABLE Account?
Yes! Louisiana taxpayers who deposit funds into a Louisiana ABLE account for any beneficiary can exclude that amount from their taxable income for that year on their state tax return. At this time there is no limit on how much you can exclude, although the IRS only allows up to $14,000 in deposits to an ABLE account per year. This exclusion is only available if you use the Louisiana ABLE account program, so that is one mark against opening an account in another state.
Is there an initial minimum contribution requirement to open a Louisiana ABLE account?
No, but there must be a deposit of at least $10 within 180 days of the account being opened. This is lower than most other states, so people can open an account now even if they don’t expect to have much to put in it right away.
Is there an annual fee to maintain the account?
Louisiana does not charge a fee; however the financial institution that handles investments will charge fees based on a percentage of the account balance.
Is there a minimum annual contribution to the account?
After the initial contribution, the current rules do not require any additional deposits. The only restriction is that if you do make deposits, they must be least $10. Account owners may set up direct deposit to make contributions on a regular basis, but the program does not require regular contributions.
Are there fees or restrictions to the number of disbursements you are allowed?
There are no fees for disbursements, but you can only make two per month. Those disbursements may be for no less than $200. Louisiana is the only state with this kind of restriction on ABLE accounts.
Since Louisiana did not allocate any money for ABLE program administration, this restriction serves to minimize the program’s cost by reducing the number of transactions staff will have to process. This restriction puts the Louisiana program at a disadvantage, because it lacks the flexibility other states’ ABLE accounts have.
Can I pay for things I buy with a debit card from my ABLE account?
No. The Louisiana ABLE program will only issue disbursements directly to the account owner or his/her authorized representative. In other states’ programs, ABLE account owners use a debit card to access their funds, and there is no minimum amount they must spend to use it.
Will the money I deposit in an ABLE account grow or earn interest?
Yes. There will be multiple investment options to choose from, managed by a private financial institution. We know that Vanguard is the investment bank for the 529 START program, so there’s a good chance that Louisiana’s ABLE accounts will also be managed by Vanguard.
How many investment options are associated with the program?
We don’t know for sure yet, but the 529 START program has 10 options. (See http://www.startsaving.la.gov/savings/options2.jsp) You will be able to change the fund you select for your account no more than twice each year.
Can I roll over my Louisiana ABLE Account to another state’s ABLE program?
Probably, but it’s not clear. This section of the rules is copied directly from the 529 educational savings program, and it says “An Administrator may request a rollover of the current value of the account to another qualified tuition program.” Since ABLE is not a qualified tuition program, it appears that this line needs correction. They might have meant that accounts can be rolled over to ABLE accounts in other states, or perhaps to a qualified tuition program within Louisiana or elsewhere.
What else do I need to know?
It is important to note that these are draft rules, so changes are likely still in process. It does give us valuable information about the direction the program is taking. You can compare this information with ABLE accounts in other states at the ABLE National Resource Center’s website: http://ablenrc.org/state_compare/.
What comments or questions do you have about Louisiana ABLE Accounts? Please share in the comments.