UNIQUE NEEDS REQUIRE SPECIALIZED KNOWLEDGE
Quick Facts 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 in Connecticut? There are many questions regarding ABLE accounts (also known as 529A accounts), with answers made simple and easy to understand 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?
An ABLE account (529A account) was created in 2014 by the Achieving a Better Life Experience Act. 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 programs needed for immediate care, such as Social Security benefits, Medicaid, Medicare, and other state and federal programs that are income-based.
How do I qualify for an ABLE account?
The ABLE account is specifically meant to be used for “qualified disability expenses,” which will be covered below. Applicants must meet two main criteria to open a 529A:
- The disability must have occurred before the person was age 26.
- 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. If the individual is not currently receiving SSI or the disability occurred before age 26, a physician’s letter will suffice to meet the criteria.
Of note, if the individual is unable to manage the account on their own, an authorized legal representative can open and manage the account on their behalf. This could be a Power of Attorney, Conservator of Estate, or an authorized family member.
What is an ABLE account used for?
Money put into the ABLE account is to be used for “qualified disability expenses.” This includes any expenses directly related to the disability and the care thereof. Some examples of qualified disability expenses include:
- Legal fees
- Basic living expenses
- 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
This is not an inclusive list, and other needs may and can certainly qualify as qualified disability expenses.
A 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, this is technically treated as income from an IRS standpoint and 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.
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.
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 support 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. (Remember – it is also tax-exempt).
ABLE accounts are also eligible for the Saver’s Credit on tax returns, which is up to $1,000 per year. This credit applies to disabled individuals who earn their own income and save it within an ABLE (529A) account.
If money is in a 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.
There are also benefits for those who are part of HUD. 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.
Opening an ABLE Account
When possible, open the ABLE with a child, open one yourself as a young adult, or have someone guide you. It is a good way to learn about money, saving, and investing for the future
It is important to note that the state of Connecticut does not currently have an ABLE program, so accounts must be opened out of state. Different states have different characteristics and fees. 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 option fees to take into account. To find the ABLE account that best suits your needs, we can help.
If you need more information
If you need answers to more of your questions about how to open up an ABLE account in Connecticut, feel free to contact us at Planning Across the Spectrum by calling 860-606-7060 or emailing us at [email protected]. We will be happy to schedule a free consultation and help you in any way possible to explore your options regarding ABLE (529A) accounts and plans.
Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Planning Across the Spectrum are separate entities from LPL Financial
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