Since the passage of the Achieving a Better Life Experience (ABLE) Act in 2014, tens of thousands of people with disabilities have opened up new, special tax-free savings accounts to save for disability-related expenses. These accounts, popularly known as ABLE accounts, allow many people with disabilities or their families to save while the account owner remains on government assistance. The accounts can be used in creative ways, either alone or in conjunction with other planning tools, to make a big difference to families with special needs children.
ABLE accounts are modeled on popular 529 college savings plans, and are state-based, just like the college plans, Upon opening an ABLE account, people with disabilities and their families can set aside up to $15,000 annually to spend on a wide range of “qualifying disability expenses.” As long as the total in the ABLE account falls below $100,000, the account’s funds are shielded from the income and resource limits for Supplemental Security Income (SSI), Medicaid, and other government benefits, thus allowing the account owner to maintain eligibility.
However, not everyone can open an ABLE account. SSI and Social Security Disability Insurance (SSDI) recipients are automatically eligible. Others may only open an account if they obtain a certification from a licensed physician attesting that they otherwise meet the Social Security Administration’s definition of “disabled.”
Moreover, people are only eligible if their disability formed prior to age 26, effectively excluding those whose disabilities developed via chronic conditions, workplace injuries, or catastrophic events after turning 26.
What may the money in an ABLE account be spent on? These accounts may be used to pay for qualifying disability expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. The Internal Revenue Service (IRS) has urged states to interpret “qualifying disability expenses” broadly. The ABLE Act defines the term as follows:
“Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.”
According to Dionysios Pappas, “ABLE accounts established in Pennsylvania carry a unique advantage. Unspent funds remaining in the account after the account-holder dies pass to named beneficiaries without the usual obligation to first reimburse Medicaid benefits paid out during life.”
While ABLE accounts are often opened by the beneficiaries’ family, adult beneficiaries can open accounts in their own name, providing a level of financial independence otherwise unavailable when utilizing trusts and more complex savings tools.
Because ABLE accounts come with many rules and possible pitfalls, please feel free to contact us before setting up a special needs plan.
For more on the pros and cons of opening ABLE accounts, click here.
For an article on practical uses for an ABLE account, click here.
For a directory of state ABLE account programs, click here.
For more on ABLE accounts, including fact sheets, articles and short webinars, visit the ABLE National Resource Center.