WAG 07-04-10: Pension Plans, Retirement and Educational Accounts, ABLE Accounts

PM 07-04-10

Tax-preferred Pension plans, Retirement and Education accounts, new manual materialand ABLE accounts are exempt from consideration as an asset. Successor retirement accounts that are exempt from federal tax are also exempt.

Pension Plans/Retirement Accounts

Following is a list of the exempt pension/retirement accounts and a brief description.

Pension Plan/Retirement Account What is It? Authorized Under
Pension or traditional defined-benefit plan* Employer-based retirement plan that promises retirees a certain benefit upon retirement, regardless of investment performance. Section 401 of the Internal Revenue Code
Cash Balance Plans  Employer-based hybrid plan that combines features of defined benefit and defined-contribution plans. Section 401(a) of the Internal Revenue Code
Employee Stock Ownership Plan Similar to a profit-sharing plan that must be primarily invested in the employer's stock and under which distributed benefits must be offered in the form of the employer's stock. Section 401(a) of the Internal Revenue Code
Keogh plan**  Informal term for retirement plans available to self-employed people. Section 401(a) of the Internal Revenue Code
Money Purchase Pension Plan Employer-based defined contribution plan under which annual contributions are fixed by a set formula. Section 401(a) of the Internal Revenue Code
Profit Sharing Plan Employer-based defined-contribution plan under which employer contributions may (but need not) be linked to profits. May provide 401(k) accounts. Section 401(a) of the Internal Revenue Code
SIMPLE 401(k)* 401(k)-type plan available only to small businesses: exempt from certain restrictions and subject to some limitations on employer contributions. Section 401(a) of the Internal Revenue Code
401(k) plan* Defined-contribution plan that allows employees to contribute to their accounts from their salary or wages on a pre-tax basis (with earnings tax-exempt until withdrawal). Employers may or may not contribute. Section 401(a) of the Internal Revenue Code
403(a) Plans that are similar to 401(a) plans but are funded through annuity insurance. Section 403(a) of the Internal Revenue Code
403(b) plan* Tax-sheltered annuity or custodial account plan offered by certain tax-exempt organizations and public educational institutions. Many are salary reduction plans that look like 401(k)s. Section 403(b) of the Internal Revenue Code
Individual Retirement Account (IRA) Vehicle for tax-deferred retirement saving controlled by individuals rather than employers. Many IRAs were previously employer-based accounts that individuals converted into an IRA when they left their job. Section 408 of the Internal Revenue Code
SIMPLE IRA Employer-based IRA available only to small businesses. Section 408(p) of the Internal Revenue Code
Simplified Employee Pension Plan Employer-sponsored plan available only to small businesses; allows employers to contribute to employee accounts that essentially function as IRAs. Section 408(k) of the Internal Revenue Code
Roth IRA Similar to an IRA but with different income limits and tax treatment. Section 408(A) of the Internal Revenue Code
457 plan* Plan offered by state and local governments and non-profit organizations. Section 457(b) of the Internal Revenue Code
501(c)(18)* Plan offered mostly by unions. Had to be set up prior to June 1959; now largely obsolete. Section 501(c)(18) of the Internal Revenue Code
Federal Employee Thrift Savings plan* Plan offered by the federal government to its employees. Section 8439 of Title 5 of the US Code

* Already exempt from the SNAP asset test prior to 10/01/08

** Keogh plans that involve a contractual obligation with someone who is not a household member were already exempt from the fooSNAP asset test prior to 10/01/08.

Educational Accounts

The following educational accounts are also excluded:

  • funds in a qualified tuition program described in section 529 of the Internal Revenue Code; or
  • funds in a Coverdell education savings account under section 530 of the Internal Revenue Code.

new manual material ABLE Accounts

Tax exempt savings accounts established to provide secure funding for disability-related expenses for designated beneficiaries found disabled before age 26.