InnovAtIons CHAllenge vA
New products are now giving variable
annuities a run for their money. The
Treasury Department’s approval of
DIAs in 401(k)s in July was big news
for the annuities market in 2014, and
further product innovations are around
the corner, LIMRA and IRI said.
Giesing said the DIA market has
grown rapidly from just three companies
offering such products in 2011 to 15 in
2014, while SPIAs also are a growth area.
“We’re looking at growth for SPIAs
and DIAs combined to be up 15% to
20%,” Giesing said. “There are oppor-
tunities for advisors as they learn
about Treasury changes and new prod-
ucts, but it’s going to take time for an
impact on sales as advisors get a bet-
ter understanding of the market, and
the insurance companies are studying
the regulations and making tweaks and
Fixed products stumbled toward
the end of the year, with IRI report-
ing that Q3 2014 fixed annuity sales
dropped 10.7% quarter over quarter,
based on data from Beacon Research
and Morningstar Inc.
Joyce Hanson can be reached at jhanson@
ABLE Law Provides Big Tax Benefits for Disabled
As 2014 drew to a close, Congress, as expected, took
steps to retroactively extend a variety of temporary tax
provisions (see “The Tax Extender Benefits for Your Clients,”
ThinkAdvisor.com, Jan. 9). What was not expected was the
section that was attached to the tax extender bill to create
an entirely new tax-preferred savings vehicle.
For those clients who are supporting individuals with disabilities, the Achieving a Better Life Experience (ABLE) Act
introduces a new type of tax-advantaged savings account
that is specifically designed to address some of the challenges to savings that these individuals have faced in recent
years. As long as the guidelines established by the ABLE
Act are followed, these clients now have a viable method for
saving to meet future expenses—without risking disqualification from the federal means-tested programs upon which
many disabled individuals currently rely.
ABle Act Basics
Under previously existing rules, disabled individuals were
often discouraged from accumulating assets to meet
future expenses because, absent the use of expensive trust
vehicles, the individual could be disqualified from receiving
Social Security and Medicaid benefits if he or she accumulated assets worth more than $2,000.
The ABLE Act modifies these rules to allow individuals to
accumulate up to $100,000 in so-called “ABLE accounts” without becoming disqualified from receiving Social Security benefits (above and beyond the traditional $2,000 resource limit,
so that a total of $102,000 can be accumulated without risk of
disqualification). Medicaid benefits will not be impacted regardless of how much the individual deposits into the ABLE account.
ABLE accounts are modeled after IRC Section 529 college
savings plans, so that after-tax funds are contributed to the
account, but those funds are permitted to grow on a tax-free
basis—so that distributions from the account are not taxed
when received. Currently, the annual contribution limit is
based upon the annual gift tax exclusion amount ($14,000
in 2015) and will be adjusted annually for inflation.
The states must set up arrangements similar to 529 plans
before individuals can start ABLE accounts, though it’s
expected the states may do so quickly.
eligible Individuals and eligible expenses
In order to qualify as an ABLE account beneficiary, the
individual must have been diagnosed with a disability that
causes severe limitations before that individual reaches age
26. Individuals who are currently receiving Social Security
disability benefits also qualify. Regardless, eligibility for
Social Security benefits is not a requirement for establishing
an ABLE account—a severe, diagnosed disability is sufficient.
Much like a traditional 529 plan, ABLE account distributions
must be used to fund certain specified expenses of the disabled
beneficiary or will become subject to a 10% penalty tax, in addi-
tion to being taxed at the individual’s normal income tax rate.
The range of qualified expenses is broad and includes “expens-
es related to the individual’s disability,” such as expenses for
health care, housing, transportation and job training.
Individuals are generally limited to establishing only one ABLE
account. Amounts initially contributed to an ABLE account can
be rolled over into another ABLE account established either for
the same beneficiary, or for a sibling of that beneficiary who
also meets the eligibility requirements discussed above.
The ABLE Act savings accounts create a valuable resource
for clients seeking to establish funds to protect loved ones
with disabilities—without risking disqualification from the fed-
eral funding upon which these individuals otherwise depend.
As long as the new guidelines are followed, ABLE accounts
will allow savings for disability-related expenses to accrue
in order to provide these individuals with financial indepen-
dence later in life. —Robert Bloink and William H. Byrnes