Where did ABLE accounts originate from?
The Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE) became law on December 19, 2014. The ABLE law provides tax-advantaged savings or investment account for individuals with disabilities and their families.
Who is eligible for an ABLE account
The beneficiary or owner of an ABLE account must be an individual with blindness or disabilities that started before turning 26 years of age.
- Recipient of Supplemental Security Income (SSI) or based on blindness or disability
- In SSI suspense due solely to excess income or resources
- Receiving disability insurance benefits (DIB), childhood disability benefits (CDB), or disabled widow’s or widower’s benefits (DWB)
- Must be able to meet the conditions on SSA’s “List of Compassionate Allowances Conditions” are deemed to meet the requirements for filing a disability certification if the condition was present and produced marked and severe functional limitations before the individual attained age 26.
Find out more about the basics of what to expect during the disability application process
How many ABLE accounts are allowed per individual?
An eligible individual may have only one ABLE account
What are the advantages of an ABLE account?
An ABLE account provides an advantage in the areas of tax benefits and government benefits. Even though contributions to an ABLE account are made with post-tax dollars; earnings and distributions are tax-free as long as distributions are used for qualified disability expenses.
Up to $100,000 of the ABLE account balance is not counted toward determining means-based eligibility for Supplemental Security Income (SSI).
What are the limits for an ABLE account?
The total annual contributions by all participating individuals, including family and friends, for a single tax year is $16,000. Contribution limits change periodically to adjust for inflation. Typically, contributions for an ABLE account may not exceed the annual gift tax exemption ($16,000 in 2022; $17,000 in 2023). However, if the beneficiary is working, and they or their employer is not making certain retirement plan contributions, the beneficiary may contribute an additional amount equal to the lesser of their annual compensation or the individual Federal Poverty Level for a one-person household in their state of residence for the prior calendar year (which, for 2022, would be $12,880 in the continental US, $16,090 in Alaska, and $14,820 in Hawaii).
Total lifetime contribution limits are controlled by the individual state and typically range from $250,000 to $550,000.
What are the qualified expenses under ABLE account?
ABLE funds may be used for disability-related expenses to get tax benefits. Some examples of such qualified expenses include
- Housing
- Education
- Health
- Assistive Technology
- Transportation
- Prevention and wellness
- Legal fees
- Funeral and burial
- Financial management and administrative services
What are investment options available for an ABLE account?
ABLE accounts are modeled after 529 college savings accounts and investment options are offered through the state. t will be up to account owners to select investment options that match their financial needs and tolerance for risk. Investment allocations can be changed twice per year.
All investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.
Is the ABLE account the same as Special Needs Trust (SNT) or will it replace SNT?
No, ABLE accounts are easier to establish compared to SNT or pooled income trust, but they are not meant to be a replacement. An ABLE account is an excellent tool to be used in addition to SNT and increases flexibility in financial planning strategies.
Impact of ABLE account on federal means-tested programs
Supplemental Security Income (SSI)
For SSI eligibility purposes, the first $100,000 of the ABLE account is not considered a resource. If the ABLE account balance exceeds $100,000 then SSI payments are suspended until the countable resources are below the allowable limit for SSI qualification.
Medicaid program
Unlike SSI, the Medicaid program is not impacted by the ABLE account balance. Medicaid coverage will continue as long as non-ABLE resources fall under the allowable limit for SSI qualification.
Medicaid payback provision
Any monies remaining in an ABLE account when an owner dies may be subject to a reimbursement claim by Medicaid for expenses from the time the account was opened.
ABLE accounts can help significantly when it comes to wealth accumulation and tax savings. Make sure you understand every aspect of this law and how it can be incorporated into your overall special needs financial planning strategy.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.
