Impact of ABLE housing distributions on SSI

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humblecoder
Posts: 263
Joined: Thu Aug 06, 2020 8:46 am

Impact of ABLE housing distributions on SSI

Post by humblecoder »

If I were to take a distribution from my disabled daughter's ABLE account to pay for part of her housing costs, would that impact her monthly SSI payment?

The Bogleheads wiki says that it will:

The 529A plan allows a designated beneficiary to retain access to means-tested federal aid programs such as Supplemental Security Income (SSI),[11] and medicaid. However, there are limitations that can result in the lowering or suspension of SSI benefits. These limiting factors include:

A distribution for housing expenses. Housing costs are included in SSI countable income.[12] Countable income is subtracted from the maximum Federal Benefit to arrive at a net SSI benefit.


However, when I research this topic on the SSA web site, it states that it doesn't:

A distribution from an ABLE account is not income but is a conversion of a resource from one form to another, see SI 01110.600B.4.

Do not count distributions from an ABLE account as income of the designated beneficiary, regardless of whether the distributions are for a QDE that is not related to housing, for a housing expense, or for a non-qualified expense.


It does state that ABLE account distributions are considered a countable resource (i.e. it counts towards the $2000 asset limit) in some cases. However, you can see, the SSA prefaces this by again stating that it isn't considered income:

A distribution from an ABLE account is not income, but is a conversion of a resource from one form to another, see SI 01110.600B.4.

Count a distribution for a housing expense or for an expense that is not a QDE as a resource, if the designated beneficiary retains the distribution into the month following the month of receipt. If the designated beneficiary spends the distribution within the month of receipt, there is no effect on eligibility. Apply normal SSI resource counting rules and exclusions to items purchased with funds from an ABLE account.


Before you ask, I did look at the link that was cited in the wiki article. Here is what is stated in the citation:

Income definition
Income is anything you receive during a calendar month and can use to meet your needs for food or shelter. It may be in cash or in kind. In-kind income is not cash; it is food or shelter, or something you can use to get food or shelter.

Countable Income definition
Countable income is the amount left over after:

Eliminating from consideration all items that are not income; and
Applying all appropriate exclusions to the items that are income.
Countable income is determined on a calendar month basis. It is the amount actually subtracted from the maximum Federal benefit to determine your eligibility and to compute your monthly payment amount.


As you can see Countable Income what is left over after eliminating items that are not income, but it doesn't state what those items are.

The way I interpret all of this is that ABLE distributions for housing expenses are not income so they would be one of those items that are eliminated from consideration when calculated "Countable Income".

What does the hive mind say? Is there some other nuance that I am missing?
terran
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Re: Impact of ABLE housing distributions on SSI

Post by terran »

I don't have first hand experience with this, so I can't tell you for absolute certain, but my understanding from the POMS you posted, which I've read before is that ABLE account distributions used for housing won't reduce SSI. As the quote you've pulled out indicates, you just need to make sure the housing expense is paid within the month you take the distribution from the ABLE account so the money isn't considered a resource at the start of the new month.

I totally get where you're coming from, though, as this seems like a workaround that would basically let you get around the whole in-kind support and maintenance issue (other than for food), so it seems surprising that this is how the law works. I'd love to hear from someone who has actually done it, but if my sister ends up living with us once my parents are gone I plan to try it out if the housing we provide her is worth more than her SSI can support. I think we'd end up paying tax on "rent" the account would pay even though we'd be contributing it right back to the account, so I'll have to see if that tax and the hassle would end up being more than the 1/3rd reduction in SSI she'd see if we just provided in-kind support and maintenance straight out.
Topic Author
humblecoder
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Re: Impact of ABLE housing distributions on SSI

Post by humblecoder »

terran wrote: Wed Aug 19, 2020 10:29 am I totally get where you're coming from, though, as this seems like a workaround that would basically let you get around the whole in-kind support and maintenance issue (other than for food), so it seems surprising that this is how the law works. I'd love to hear from someone who has actually done it, but if my sister ends up living with us once my parents are gone I plan to try it out if the housing we provide her is worth more than her SSI can support. I think we'd end up paying tax on "rent" the account would pay even though we'd be contributing it right back to the account, so I'll have to see if that tax and the hassle would end up being more than the 1/3rd reduction in SSI she'd see if we just provided in-kind support and maintenance straight out.
Yes, this is exactly what we are exploring. If her fair share of housing/food cost exceeds her SSI, using an ABLE account to make up the difference seems like a reasonable way to avoid the 1/3 reduction for in-kind support (assuming it doesn't otherwise impact her SSI benefits).

It is a big strange, though, since we would essentially be funding her ABLE account ourselves so, in essence, we would be providing in-kind support. However, since the in-kind support flows through her ABLE account, it isn't counted as in-kind support. Seems too good to be true. That's why I want to get some confirmation that I am not missing some nuance, especially in light of what is stated in the wiki page.

Regarding paying taxes on the rent, my understanding is that rent equals the expenses, then there would be no tax liability. Presumably, I would only have my daughter pay her share of the cost of room and board. Again, this could be another area where I am missing some nuance.

If this does get to be too much of a pain, we'll just take the reduction SSI benefits and call it a day. While the extra money is nice, it won't make or break our budget.
Amanda999
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Location: Boston suburbs

Re: Impact of ABLE housing distributions on SSI

Post by Amanda999 »

You can pay rent and utilities out of her ABLE, but not food (without reducing her SSI payment.) The amount withdrawn must be used for rent/utilities in the same month (else it can be counted as a resource and thus reduce SSI.) This is b/c its her money and, thus, not ISM. (Its not income because its her money to start with - she owns the ABLE.)

Also, you can use fair market rent instead of her fair share of actual housing costs. I.e., what would you charge a stranger to rent a bedroom (and shared kitchen and bathroom and playroom - whatever space she uses) in your home - say a graduate student?

Whether you use fair share or fair market value: Note that to avoid the 1/3rd reduction (due to ISM) there are several hoops to jump through to prove she's in a separate household if she lives in a relative's house, including multiple documents to sign under oath. See: https://howtogeton.wordpress.com/how-to ... gulations/

Good luck!

PS Don't rely on this - I'm no tax expert! - but I assume that rental income is taxable. A disabled child living with the parent-homeowner MUST be a separate household per SSI to avoid shared LA and thus 1/3rd reduction. Say you rent a room to a grad student: the rent s/he pays would be taxable, correct? (I.e., the parent-homeowner would have to report that rental income on their tax return.) So I can't see how receiving rent from my child is any different. I don't know anything about how people report rental income on their taxes - maybe there are deductions like for other small businesses?? Do the costs of running the house reduce net income from the graduate student renting a room from you example? (I don't know.)

PPS None of what I wrote applies until the child is 18: parents' income/assets count for SSI until then. And note that once a parent starts SS retirement (or disability? or widow?) benefits, his/her disabled adult child switches from SSI to SSDI, which ends the asset/income issues. Unless the child needs to stay on Medicaid, as opposed to Medicare, and then assets and income do still matter.
terran
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Re: Impact of ABLE housing distributions on SSI

Post by terran »

I thought a shared living arrangement was fine (no 1/3rd reduction) as long as the person paid their fair share? I thought ISM only came into play if the individual was in a shared living arrangement and someone else paid some of their living expenses. Since the ABLE account can pay for all the housing expenses that leaves plenty of SSI money for food, so as long as those together pay for the daughter's fair share in a shared living arrangement everything should be fine, shouldn't it? Or am I misunderstanding the shared living arrangement rules/consequences?
Topic Author
humblecoder
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Re: Impact of ABLE housing distributions on SSI

Post by humblecoder »

Thanks for taking the time to reply. My daughter isn't 18 yet so I still have time to prepare for this. It sounds like you have some experience in this area, so I had some questions.
Amanda999 wrote: Mon Oct 26, 2020 8:01 am You can pay rent and utilities out of her ABLE, but not food (without reducing her SSI payment.) The amount withdrawn must be used for rent/utilities in the same month (else it can be counted as a resource and thus reduce SSI.) This is b/c its her money and, thus, not ISM. (Its not income because its her money to start with - she owns the ABLE.)
I looked at the SSA POMS related to ABLE accounts and SSI (https://secure.ssa.gov/apps10/poms.nsf/lnx/0501130740) but I didn't find anything that says that ABLE money used for food reduces ones SSI:


Do not count distributions from an ABLE account as income of the designated beneficiary, regardless of whether the distributions are for a QDE that is not related to housing, for a housing expense, or for a non-qualified expense.


There is no exception stated regarding food specifically. Do you have a link that confirms what you are saying (preferable a SSA.gov link)? It is possible that I might have misread something so I want to have all the info.
Amanda999 wrote: Mon Oct 26, 2020 8:01 am PS Don't rely on this - I'm no tax expert! - but I assume that rental income is taxable. A disabled child living with the parent-homeowner MUST be a separate household per SSI to avoid shared LA and thus 1/3rd reduction. Say you rent a room to a grad student: the rent s/he pays would be taxable, correct? (I.e., the parent-homeowner would have to report that rental income on their tax return.) So I can't see how receiving rent from my child is any different. I don't know anything about how people report rental income on their taxes - maybe there are deductions like for other small businesses?? Do the costs of running the house reduce net income from the graduate student renting a room from you example? (I don't know.)
My impression is a separate household is NOT required if the disabled person pays their fair share of housing/food. I am basing this on reading https://www.ssa.gov/ssi/spotlights/spot ... uction.htm:

The one-third reduction does not apply if you live in another person’s household but you pay your share of the expenses for food and shelter.

EXAMPLE—One-Third Reduction No Longer Applies: Ms. Johnson notifies Social Security that she started paying her son for her share of the household expense for food and shelter as of February 1, 2020. There are five persons in this household: Ms. Johnson, her son, his wife, and two children. The household expenses for food, rent, and utilities are $1,500 per month. Ms. Johnson pays her son $300 per month, which is her pro rata share. Based on Ms. Johnson paying her pro rata share and not having any other countable income, we would stop reducing her SSI benefits by one-third and begin paying her the full SSI amount of $783 per month.


Regarding rental income, I thought you only would need to pay taxes on the profits from rental. For instance, if the person's share of the mortgage/utilities/garbage/etc is $500 and I charge $500 in rent, then my net rental profits are zero.

Thank you in advance for any clarifications that you can give. I am new to this area so it is likely that your understanding is better than mine. What I am probably going to do is talk to our attorney when the time gets closer to make sure that we do everything properly to maximize the benefits that my daughter is due.
JBTX
Posts: 7317
Joined: Wed Jul 26, 2017 12:46 pm

Re: Impact of ABLE housing distributions on SSI

Post by JBTX »

Amanda999 wrote: Mon Oct 26, 2020 8:01 am You can pay rent and utilities out of her ABLE, but not food (without reducing her SSI payment.) The amount withdrawn must be used for rent/utilities in the same month (else it can be counted as a resource and thus reduce SSI.) This is b/c its her money and, thus, not ISM. (Its not income because its her money to start with - she owns the ABLE.)

Also, you can use fair market rent instead of her fair share of actual housing costs. I.e., what would you charge a stranger to rent a bedroom (and shared kitchen and bathroom and playroom - whatever space she uses) in your home - say a graduate student?

Whether you use fair share or fair market value: Note that to avoid the 1/3rd reduction (due to ISM) there are several hoops to jump through to prove she's in a separate household if she lives in a relative's house, including multiple documents to sign under oath. See: https://howtogeton.wordpress.com/how-to ... gulations/

Good luck!

PS Don't rely on this - I'm no tax expert! - but I assume that rental income is taxable. A disabled child living with the parent-homeowner MUST be a separate household per SSI to avoid shared LA and thus 1/3rd reduction. Say you rent a room to a grad student: the rent s/he pays would be taxable, correct? (I.e., the parent-homeowner would have to report that rental income on their tax return.) So I can't see how receiving rent from my child is any different. I don't know anything about how people report rental income on their taxes - maybe there are deductions like for other small businesses?? Do the costs of running the house reduce net income from the graduate student renting a room from you example? (I don't know.)

PPS None of what I wrote applies until the child is 18: parents' income/assets count for SSI until then. And note that once a parent starts SS retirement (or disability? or widow?) benefits, his/her disabled adult child switches from SSI to SSDI, which ends the asset/income issues. Unless the child needs to stay on Medicaid, as opposed to Medicare, and then assets and income do still matter.
That site you linked is a great site I previously stumbled upon. I cant say for sure it is a definitive source.
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