ABLE Accounts - A revolutionary way for persons with disabilities to save money
The Achieving a Better Life Experience (ABLE) Act was enacted by Congress in 2014. The purpose was to create a savings program similar to the 529 college savings programs. These accounts are tax-advantaged and state-sponsored. Currently, there are 42 states (plus Washington DC) which sponsor ABLE programs, and many do not require residency to sign up. Each state may vary with fees and minimum funding requirements, which can be compared using the link at the bottom of this article.
Who is Eligilbe for the ABLE Act?
To be eligible for an ABLE account, the designated beneficiary must be diagnosed with a disability or blindness, and be eligible to receive benefits before age 26. When established, the account can receive contributions from either the beneficiary or third parties. When a third party contributes to the account, it is not considered income to the beneficiary, but is instead treated as a completed gift. The limit for total contributions to an account per year from all sources is the per-donee gift tax exclusion for the current year. In 2019, the limit is $15,000.
Although the contributions are made with post-tax dollars, the interest and other investment earnings are not included as taxable income (similar to a ROTH IRA). And when money is withdrawn for “qualified disability expenses”, the distributions are not considered income. This includes medical treatment, housing costs, special-needs transportation, financial / legal fees, plus many other costs.
ABLE Act Added Benefits
In addition to the previously mention benefits, one of the most important is that the first $100,000 of the account value is not treated as a personal asset of the designated individual. Meaning, when applications are submitted for assistance such as Medicaid or Supplemental Security Income, the balance under $100k does not count toward the $2,000 financial asset limit. For many, this asset limitation is the reason for never saving any money. With the introduction of ABLE accounts, there is more flexibility to save money for additional financial needs.
Statistics show that ABLE accounts are highly under-utilized, with only around 46,000 accounts open out of an estimated 8 million eligible individuals. For parents trying to secure a financial future for their disabled child’s needs or for eligible individuals looking for a way to save money while maintaining the ability to receive assistance, setting up an ABLE account can be an easy way to manage finances.
To compare the plans available from each state, please visit https://www.ablenrc.org/compare-states/.