Living with a disability is tough enough, but many people with disabilities also find themselves in tough financial situations. Obtaining disability benefits from certain government programs like Supplemental Security Income (SSI) requires meeting a means test. In essence, if you have more than a couple thousand dollars saved up, then you will not meet the eligibility requirements for the program.
However, most of these people do not have the financial means to live on their own without some assistance. So, what are they to do? This is where the ABLE program comes into play.
Keep reading as we explain exactly what an ABLE account is, how these accounts work, and who can qualify for one.
What Is An ABLE Account?
An ABLE account is a special type of tax-free savings account that offers some special advantages to disabled people and their families.
ABLE comes from the name of the law allowing for these accounts – the Achieving a Better Life Experience Act. You might also hear these called 529A accounts.
Advantages of ABLE accounts
These accounts are allowed to grow tax-free, and the beneficiary and owner of the account is the disabled person.
One of the biggest advantages of these accounts is that the assets in the account are not counted toward that person’s resources when determining eligibility for government benefits like SSI, Medicaid, and other programs that require low income.
Anyone may contribute to an ABLE account, including the account owners themselves, friends, family, a Special Needs Trust, and other sources.
While the money in the account can grow tax-free for the beneficiary, the contributions are not generally tax deductible. Some states may allow tax deductions, but the IRS does not provide deductions for ABLE contributions.
The funds in these accounts may be used by the owner/beneficiary for many different things. Eligible expenses will be discussed later in this article. Still, generally, they can be used for accessible housing, assistive technology, medical expenses not paid by Medicare or Medicaid, and many other disability-related expenses.
These accounts help eligible individuals maintain a higher quality of life, and they do not count against them when determining eligibility for needs-based assistance programs.
KEY TAKEAWAYS
- An ABLE account is a special type of tax-free savings account for disabled people and their families.
- Funds in an ABLE account can grow tax-free and distributions from the account, that are used for qualified expenses, are excluded from Federal income taxes.
- An individual with a disability can only have one ABLE account.
ABLE Account Eligibility & Tax Treatment
So, who can open an ABLE account, and do they receive any special tax treatment?
A few rules must be met to qualify for an account of this type:
- The individual must have a disability that began before age 26.
- If the person is already receiving SSI benefits or Social Security Disability Insurance (SSDI) benefits, then they can automatically qualify for an ABLE account.
- If they are not receiving disability benefits from the Social Security Administration, they can still qualify for an ABLE savings account with some additional documentation.
- Documentation includes a letter of disability certification from a licensed physician, and the disability must meet the Social Security disability rules.
Regarding taxes, an ABLE account is allowed to grow tax-free for the beneficiary.
- Do Not plan on a tax deduction for ABLE contributions. Tax benefits for contributors are minimal.
- There is no Federal deduction for contributions, but some states allow small deductions on your state income taxes.
- There is no income tax assessed on contributions withdrawn, but they must be made with after-tax dollars.
Unlike a simple savings account, there are many investment options for an ABLE account.
Your option will likely depend on your risk tolerance and estimated future financial needs.
Must read articles related to Social Security Disability
- A complete guide on “How to Apply for Disability“.
- Learn more about what conditions qualify for disability.
- Check out the 7 Signs That You Will Be Approved For Disability Benefits.
- Learn more about how to win SSDI appeal.
- You may be entitled to SSDI back payments…read “How to track my disability back pay“.
Contribution Limits For ABLE Accounts
You might be wondering how much money can be placed into an ABLE account. The law does have some limits on contributions, so here is what you need to know.
- You should know that the annual contribution limit to a single ABLE account is capped at $18,000. This includes contributions from all sources.
- For instance, if your parents contribute $12,000 to your account and your grandparents contribute $6,000 in a year, then no further contributions can be made to your account because the limit has been reached.
- Note: This limit aligns with the IRS rule regarding the gift tax exclusion.
- You should also be aware that many states set limits on the total amount that may be placed into an ABLE account. This amount varies by state but generally aligns with the state rules on 529 education savings plans.
- These limits range from $235,000 to $575,000. You should also keep this in mind if you open an ABLE plan outside your home state.
- If your account reaches more than a $100,000 balance, then your SSI benefits will be affected. The first $100,000 in your account is basically exempt from the means test for SSI eligibility if you have no other resources.
- However, when the ABLE account and your other resources subject to the test reach $100,000, then your SSI benefits will be temporarily stopped. As soon as the amount falls below $100,000, your benefits can resume.
- There is no time limit to how long the benefits can be paused.
TIP
If you meet the qualification, you can open both an ABLE account and a Special Needs Trust. These two accounts can be used in tandum to meet your financial needs.
ABLE Qualified Expenses
So, what exactly can this money be used for? In general, the money must be used for disability-related expenses.
Many of these qualified disability expenses deal with accessibility:
- Accessible housing, accessible transportation, or assistive technology.
The funds can also be used for health care expenses:
- Wellness and preventive care, as well as financial management and administrative services.
Some people with ABLE accounts may wish to attempt to return to work.
- Money in the account can be used for education or employment training and support.
Funds can also be used more broadly to pay for:
- Legal fees, funeral and burial expenses, and even basic living expenses.
The ABLE Act provides for a wide range of items for which distributions can be used as long as the money is used for the designated beneficiary.
There is also an organization called the ABLE National Resource Center that can help answer questions and guide you through the establishment and usage of ABLE accounts.
ABLE Account VS Special Needs Trust
You might be wondering why you would want to establish an ABLE account instead of a special needs trust. This type of trust is often used to put money aside for a child or family member with special needs or a disability.
There are a few differences:
- ABLE account affords the beneficiary much greater flexibility in how the funds in the account are used.
- It is generally easier to access the funds.
- The investment strategies used in the account can be easily changed.
The type of account that you ultimately use will depend on your specific personal situation. However, there is nothing that prevents you from having both types of accounts. Many people find that a combination of an ABLE account and special needs trust ultimately accomplishes the goal that they wish to achieve when it comes to financial planning.
The Bottom Line
ABLE accounts are great tools that allow people with disabilities to have financial security while still being able to take advantage of government benefits.
These accounts provide great tax advantages for the beneficiary, and anyone can contribute to them, including friends, family, and even trusts.
If you already receive SSI or SSDI benefits, you should consider opening an ABLE savings account today.
Frequently Asked Questions
There are only a handful of conditions that are automatically approved such as ALS, organ transplants, and very serious types of cancer.
For other conditions, you will need to either meet or equal a listing or prove vocationally that you are unable to work due to your condition.
A person already receiving SSI or SSDI benefits will automatically qualify for an ABLE account.
Others with disabilities can still qualify. You must have a disability onset date before your 26th birthday and have a disability determination letter from a licensed physician.
The account owner or beneficiary controls the account, and this is the disabled person.
If the disabled person is a minor, a parent or guardian can control the account until the child reaches the age of majority.
If a disabled adult is unable to open an account on their own, they must have an authorized legal representative open and control the account for them.
There are no income limits for establishing an ABLE account.
However, your income might affect your ability to receive government benefits like SSI or Medicaid. To qualify for these programs, you must generally have very little to no income or resources outside your ABLE account.
Yes, many banks offer these types of accounts. The rules for managing the accounts vary slightly from state to state.
In addition, you can choose to establish an account outside of your state of residence if the rules in that state meet your needs better than your own state rules.
Note: An individual with a disability can only have one ABLE account regardless of where it is opened.
You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.
