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The Top 5 Things you need to know about ABLE accounts

There are many immediate concerns when it comes to the care of a child or person with special needs, but parents or caregivers of special needs children must also think about planning for the future as well. One of the most talked-about topics within special needs advocacy and support groups at present is the opening of an ABLE account. How is it done? Why is it done? Do I even qualify? How do I open an account? There are many questions regarding ABLE accounts (also known as 529A accounts), with simple, easy-to-follow answers below.

First, what IS an ABLE account?

You may have heard another parent say, in passing, “I opened an ABLE account—you should think about it too.” But what exactly does that mean?

The ABLE account (529A account) was created in 2014 by the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act. The Act allows qualified individuals to save money in an ABLE account, which is a tax-exempt account. Its main purpose is to allow the families and caregivers of those with special needs and disabled individuals to save and invest funds for the care of the disabled family member, without harming eligibility for government benefits and programs needed for immediate care, such as Supplemental Security Income (SSI), Medicaid, and other state and federal programs that are income-based.

Funds within an ABLE account are not considered when determining eligibility for these means-tested benefits. Using an ABLE account, an individual can save more than the $2,000 asset limit on means-tested benefits, and if, for example, an individual receives SSI benefits, they will be able to continue receiving payments as long as their ABLE account, combined with other resources does not exceed $100,000 by an amount beyond the SSI limit. Learn more about the different types of government benefits available to the neurodiverse.

Another benefit of ABLE accounts is that friends and family members can make contributions to the account for an individual with special needs. Given that the funds in an ABLE account can grow tax-free, combined with the fact that the amount within the account does not impact benefits eligibility, this can be a great option for friends and family members looking to financially support a loved one with special needs. This also ensures that the financial support can be used in a way that is most beneficial to the individual because the money can be used on a wide variety of qualified disability expenses that can help improve the quality of life and care of the individual with special needs. Examples of qualified disability expenses will be discussed further below.

How do I qualify for an ABLE account?

The ABLE account is designed specifically to be used for “qualified disability expenses,” which will be covered below. Not all individuals with special needs are eligible to open an ABLE account. Applicants must meet two main criteria to do so:

  • The disability must have occurred before the person was 26 years old.
    • While the onset of the disability must be before reaching the age of 26, individuals over the age of 26 can still open an ABLE account. The ABLE account can be opened by the individual with special needs or a legal guardian or another individual with a Power of Attorney. And if an individual is unable to manage the account on their own, an authorized legal representative, such as parents or legal guardians, or individuals with a Power of Attorney, can also manage the account on their behalf.
  • The disability must meet Social Security criteria, which means that the disability has impacted the individual’s ability to work for the preceding 12 months.
    • Provided that the individual began receiving Supplemental Security Income (SSI) before the age of 26, these criteria are easily met. This is because individuals who meet the age criterion and receive SSI or SSDI are automatically eligible to open an ABLE account. If the individual is not currently receiving SSI or SSDI, but the disability occurred before age 26, a physician’s letter of disability certification will suffice to meet the criteria.

ABLE accounts can be used for qualified disability expenses which include expenses related to:

  • Transportation
  • Education
  • Legal fees
  • Basic living expenses
  • Housing
  • Financial management and administrative services
  • Expenses for ABLE account monitoring/oversight
  • Health needs
  • Prevention and wellness
  • Assistive technology and related services
  • Employment training and support
  • Personal supports
  • Funeral and burial expenses

Learn what disability expenses ABLE accounts can pay for. This is not an inclusive list and other needs may, and certainly can, qualify as qualified disability expenses. Essentially, qualified disability expenses are understood to include basic living expenses, including food and shelter, and they are meant to serve as supplemental services and items that support other programs individuals with special needs are receiving.

Why Should I Open An ABLE Account?

There is one key question to ask when you’re considering the 529A account:

Does the disabled person in question receive any type of federal or state supports that has income thresholds (e.g., Social Security Income, Medicaid, public housing)?

If the answer is yes, then opening an ABLE account is likely a good idea, because the income saved in this account will not be counted toward total income and assets when it’s time for redetermination in those programs.

For example, if you have a savings account that contains $6,000 and SSI benefits have a resource threshold limit of $2,000, the person is automatically disqualified from receiving benefits because their income is now too high. If that $6,000 resides in an ABLE account, then it is not counted as a resource, and you can remain eligible for SSI. (Remember – it is also tax-exempt).

ABLE accounts are also eligible for the Savers Credit on tax returns, or a retirement savings contributions credit, which is up to $1,000 per year. The credit can be claimed for making eligible contributions to an ABLE account. This credit applies to disabled individuals who earn their own income and save it within an ABLE (529A) account.

If money is in a Uniform Transfers to Minors Act or Uniform Gifts to Minors Act (UGMA/UTMA) or traditional 529 and might be eligible for benefits, an ABLE can be an alternative and/or complement a special needs trust to qualify the child before they turn 18.

Another compelling benefit regarding ABLE accounts is their tax-exempt status. If you were to save money directly for your loved one with special needs, such as in a savings account, the IRS considers that money to be income and therefore taxable. The saved funds can also threaten eligibility for needed programs, such as SSI, Medicaid, and Medicare. To be even clearer, an ABLE account is not considered an asset to anyone involved with it—from the person with the disability to the executor/caregiver. There is an annual contribution limit of $16,000 (for 2022), consistent with the annual gift exclusion, aggregated across all contributions for the beneficiary.

However, it is important to note that ABLE accounts with a balance of $100,000 or higher are considered income from a Supplemental Security Income (SSI) standpoint and can threaten eligibility. Also, under a new law (IRC Section 529A(f)), any remaining balance in an ABLE account must be used to repay the state for Medicaid-assisted costs after the beneficiary’s death.

An ABLE account can also be beneficial for those with special needs trusts. An individual may use a special needs trust to fund an ABLE account, which would give them the ability to manage a portion of their own assets and strengthen their financial independence and confidence in money management. To learn more about the uses and benefits of special needs trusts, check out our legal planning page under the services expertise section of the Planning Across the Spectrum website.

Similar to how an ABLE account can help an individual with special needs maintain eligibility for SSI considering the strict limitations on income and assets, an ABLE account can also prove beneficial in maintaining eligibility for Medicaid and the Medicaid Waiver programs. While Medicaid Waivers and availability vary by state, they can provide instrumental support and services for individuals with special needs, including those related to adult day health support, assistive technology, home care services, respite for caregivers, social work services, and community integration support, among others. Taken together, the cost of such services could be unaffordable without the Medicaid Waivers which would leave many individuals critically under-supported and unable to afford necessary services if they could not remain below the limits of Substantial Gainful Activity. With an ABLE account, an individual may direct their earnings, as well as assets, into the 529A account to further protect their eligibility for and continued participation in Medicaid and Medicaid Waiver programs.

To learn more about Medicaid and Medicaid Waivers, check out our government benefits page and consider contacting Planning Across the Spectrum to learn how to help your loved one plan for their financial future.

For individuals receiving housing and nutritional assistance, such as Section 8 housing, and the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF) programs, an ABLE account can be a great way to start saving money without jeopardizing their benefits. Section 8 housing and EBT-based programs are designed to help individuals with income below the poverty line which can result in individuals spending excess money each month, or putting it in a trust, so they do not lose their benefits. This behavior can further the “poverty trap,” where benefit recipients cannot see a way to actively save money or work towards being self-supporting. An ABLE account can help such individuals start saving money, such as an emergency fund, while still receiving benefits.

For those receiving housing assistance through the Department of Housing and Urban Development (HUD), including Section 8 housing, there is a greater incentive to start saving for the future. As of May 2019, HUD will exclude amounts in the individual’s ABLE account pursuant to 24 CFR 5.609(c)(17). The entire value of the individual’s ABLE account will be excluded from the household’s assets. This means that any balance that is in the individual’s ABLE account will not be counted as income for HUD purposes.

Note: An ABLE account may not be essential for everyone. If for example an individual already has a different 529 savings account, or they are only receiving Social Security Disability Income (SSDI) or the Disabled Adult Child (DAC) benefit, which are not means-tested benefits, there is less of a need for an ABLE account. While an individual can make limited transfers from an existing 529 account to an ABLE account without tax consequences, this does not mean that opening an ABLE account is worthwhile in all situations. ABLE accounts are also more restrictive than 529 accounts, having stricter specifications for who is eligible to open an account and a lower annual contribution limit.

To learn more about what an ABLE account could do for you or your loved one, check out our three-part series on;
The Financial Benefits Of An ABLE Account
The Emotional Benefits Of An ABLE Account
Maximizing The Financial And Emotional Benefits Of An ABLE Account

Opening an ABLE Account

Eligible individuals are only allowed to have one ABLE account. Despite this limitation, an individual can change their ABLE account to a different available program.

Before opening an ABLE account, it is important to consider the available programs. Many states have their own programs, and some are open to out-of-state residents. This means that you do not have to open an ABLE account in the state you currently reside in, and you do not have to wait for your state to create its own program to open an ABLE account.

Different states do have different characteristics and fees that should be considered. Some states offer tax deductions. Most ABLE accounts come with a debit card—but also associated fees. There are also monthly maintenance fees and investment options fees to consider. To find the ABLE account that best suits your needs, we can help.

Once you have decided which program to participate in, an ABLE account can be opened by an individual with special needs who will serve as the beneficiary of the account, if they are 18 years of age or older, or the account can be established by their parent or legal guardian, or an individual with a power of attorney. We recommend opening the ABLE account with your loved one as a way to help them learn about money, saving, and investing for the future.

For additional guidance and support, work with our certified financial advisors who can help you compare neurodiverse benefit programs and learn more about what an ABLE account can do for you.