What Is An ABLE Account?
ABLE stands for Achieving a Better Life Experience – the name of a law passed in 2014 which allowed for the establishment of ABLE Accounts.
An ABLE Account is a special tax advantaged savings account designed specifically to allow disabled people to have access to money to meet basic needs and improve their quality of life while preserving eligibility for Medicaid, SSI, and other need-based assistance.
They were first created as a result of the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 – better known as the ABLE Act.
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.
529A (ABLE) accounts are designed for individuals with disabilities to save more than the maximum allowed by Medicaid, and applied towards qualified disability expenses. This way, they can 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?
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, in order 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”- this is 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 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 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 up accounts in their states, subject to certain rules. Each state’s ABLE program may have different or limited Investment options, fees, minimums and/or restrictions on the frequency of withdrawals. ABLE account owners are limited, by the ABLE Act, to change 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 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, consult with your special needs planner before setting one up.
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.