529a ABLE Accounts with Able Planning
What is an ABLE Account?
An ABLE (Achieving a Better Life Experience) Account is a tax-advantaged savings account designed for individuals with disabilities. It allows them to save for basic needs and improve their quality of life while maintaining eligibility for Medicaid, SSI, and other need-based assistance programs. These accounts were established by the ABLE Act of 2014.
The difference between a Section 529 and a Section 529 ABLE account
A Section 529 account is used by the general public to save money for college expenses. In contrast, 529A (ABLE) accounts are designed for individuals with disabilities to save more than the maximum allowed by Medicaid and apply these funds towards qualified disability expenses. This allows them to save more money without losing eligibility for Medicaid and other need-based benefits. Anyone who was formally diagnosed with a disability by age 26 is eligible for a 529 ABLE account.
Did You Know This About ABLE Accounts?
You can have both a special needs trust and an ABLE account. In fact, it’s usually a good idea for parents or guardians of individuals with chronic disabilities to establish both to preserve eligibility for Medicaid and other need-based benefits throughout the individual’s life, and to provide for their needs after the parents or guardians are gone.
ABLE accounts are subject to Medicaid “clawback,” where the state may claim ABLE account funds remaining after the death of the account beneficiary if they received Medicaid services. An ABLE account is NOT a substitute for a special needs trust.
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 Expenses Can be Paid from an ABLE Account?
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 itself 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
Most states have ABLE programs up and running, each with its own separate rules for opening accounts.
However, you are not limited to an ABLE program in your state. Most state ABLE programs allow out-of-state residents to open accounts, subject to certain rules. Each state’s ABLE program may have different or limited investment options, fees, minimums, and restrictions on the frequency of withdrawals. ABLE account owners are limited, by the ABLE Act, in the way their money is invested in the account. Misuse of ABLE funds will result in tax penalties and may affect the account owner’s eligibility for public benefits. The annual contribution limit for an ABLE account is $15,000 per individual, and total contribution limits vary by state.
While ABLE accounts are often opened by the beneficiaries’ family, adult beneficiaries can open an ABLE account in their own name, providing a level of financial independence otherwise unavailable when utilizing trusts and more complex savings tools. An ABLE account can also be established by a designated payee or a designated beneficiary, such as a child with a disability. This flexibility ensures that individuals with disabilities have access to funds that can significantly improve their quality of life while preserving their eligibility for essential benefits.
Because ABLE accounts come with many rules and possible pitfalls, it is crucial to consult with a special needs planner, such as Able Planning before setting one up. Understanding the related regulations and the specific requirements of each state’s ABLE program can help avoid mistakes that might affect eligibility for public benefits. Additionally, you may need to file certain forms and documents to ensure compliance with the ABLE Act and related regulations.
Some materials, in whole or in part provided by the Academy of Special Needs Planners, an independent 3rd-party. The information contained here does not purport to be a complete description of the topics referred to in this material. As of the date published the information is considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete due to ever changing legal constructs and state specific differences. Please note, changes in laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Saybrook Wealth Group, we are not licensed to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.