ABLE Accounts: A Savings Opportunity for Qualified Individuals with Disabilities
The Achieving a Better Life Experience Act (ABLE), signed into law on December 19, 2014, opens new pathways to financial stability for millions of Americans with disabilities and their families. Eligible individuals with disabilities and parents raising a child with a disability may open an ABLE savings account. Funds contributed to an ABLE account grow tax-free. These accounts will not adversely impact continued eligibility for federal benefits, such as healthcare, Social Security, food and housing assistance. ABLE offers opportunities and choices both short- and long-term for setting financial savings goals, creating and managing the funds in an ABLE account, involving family and friends to contribute resources to the account and keeping track of expenses.
ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families. Contributions may be made to an ABLE account by the account beneficiary, family members, friends or an employer. There are no restrictions on who can contribute to an account.
There are restrictions on how much can be contributed to an ABLE account each year. Each state sets limits as to the maximum contributions over time that can be contributed to an ABLE account. For individuals with disabilities who are recipients of Supplemental Security Income (SSI), the ABLE Act sets further limitations.
For parents raising a child with a disability or a working-age adult with a disability, there are extra costs associated with the disability that occur on a regular basis. Those extra costs could include healthcare, medications, assistive technology as diverse as screen readers, hearing aids, communication devices, and wheelchairs; personal assistance services, transportation, and home and vehicle modifications for improved access and use. Government benefits and programs may cover some of these costs and set resource limits that impact eligibility. However, ABLE accounts provide an opportunity for individuals with disabilities and their families to set money aside in a savings account managed by state ABLE programs as a supplement.
For a young adult, a working-age adult, or an entrepreneur with a disability, contributions to an ABLE account becomes a critical new way to help improve their health, independence and quality of life. The ABLE account presents important opportunities to set short and longer term financial goals, create and manage a budget, engage others to become contributors and from a circle of support and establish a plan for spending the savings for qualified disability expenses.
The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If a person meets this age criterion and they also receive Social Security benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account with the state program of their choice. If the person is not receiving Social Security disability benefits, but still meets the age of onset of disability requirement, there are other eligibility criteria. The person does not have to prove inability to work, nor is there any type of income or asset test that would limit a person’s eligibility for opening an ABLE account.
To learn more about all state ABLE programs, there is an interactive map on the ABLE National Resource Center website. You can try out a comparison tool that provides questions and answers about state ABLE programs and compare up to three state programs at the same time.
To open an ABLE account, eligible individuals with disabilities and families may choose which state ABLE program best meets their needs. An ABLE account is not for every individual with disabilities and their families. To open an ABLE account, the person must meet the eligibility requirements related to age of onset of the disability and level of disability. Even if an individual meets the eligibility requirements, there are other factors to consider, including, but not limited to current debt status, other protected savings, and financial needs and goals.
The selection of the right ABLE state program for an individual with a disability and their family would take into account a number of other factors, including:
- fees and costs to open and maintain an account
- choice of investment options
- withdrawal restrictions
- understanding of accounts to ensure informed financial decisions are made
- other value-added elements to help an individual save, manage, and grow the account savings
Funds in an ABLE account can be used to purchase products and services that are “qualified disability expenses.” A qualified disability expense must relate to the designated beneficiary of an ABLE account. The purchase of the item or service must assist him/her in increasing or maintaining their health, independence and/or quality of life.
Please note that, upon the death of the beneficiary, the state in which the beneficiary lived – or may have received Medicaid services – may file a claim for all or a portion of the funds remaining in the account after all qualified disability expenses have been paid. The amount of funds cannot exceed what the state spent on the beneficiary regarding Medicaid-related expenses, starting at the time the account was originally established. This is known as the Medicaid Payback Provision. Check with your state ABLE program administrator for further guidance on this issue.
Similar to other long-term savings plan, such as the 529 college savings plan, the earlier an account is open, the greater opportunity over a longer period of time is there for the contributions being made to an account to grow as a result of income generated from investment choices.
Each individual and family will have to decide when opening an ABLE account will be possible and make the most sense to meet their needs. There is no age limitation of any current state ABLE program as to when to establish an ABLE account.
Once the choice is made to open an ABLE account with the selected state ABLE program, be sure to create a plan that sets financial goals and identifies the need for saving, manage the account and establish spending priorities, and regularly review the account statement.
ABLE is the abbreviation for the Achieving a Better Life Experience Act signed into law on December 19th, 2014. ABLE amends the tax code to allow states to establish ABLE programs that offer eligible individuals with disabilities and families the opportunity to open one ABLE account, a tax-advantaged savings account to help pay for the extra costs of living with a disability.
Qualified Disability Expense
Funds contributed to an ABLE account and income growth from the selected investment choices short- and long-term can be used to pay for “qualified disability expenses” (QDE). A QDE covers the cost of many products and services that assists the ABLE account beneficiary to increase and/or maintain their health, independence or quality of life. A QDE may include expenses related to education, housing, transportation, employment training and support, healthcare, financial and legal services and technology-related assistance.
Source: National Disability Institute