• Posted September 26, 2020

What Expenses Can ABLE Accounts Pay For?

One of the common questions that I am asked regarding ABLE accounts is what the money can be used for? My usual answer is that it is intended to be broad on purpose! I find way to many individuals, parents and caregivers not utilizing the money in an ABLE account because they are afraid of not using the money correctly. I wanted to write this blog article to not only be a little more specific when it comes to ABLE accounts, rather then just my “If you can justify it then it is probably ok”! scenario.

The ABLE Act itself defines “qualified disability expenses” as “expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.” It then goes on to list a range of categories of potential uses for funds set aside in ABLE accounts, including:

“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.”

In subsequent proposed regulations released in June 2015, the Treasury Department and Internal Revenue Service (IRS) reiterated that the term “qualifying disability expenses” should be “broadly construed” to include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”

This means that there is no requirement that the benefit be medically necessary, such as is the case when determining health care services covered by Medicaid, or that it benefit no one but the designated individual. As an example, the regulations specify that a smart phone could qualify as a covered expenses, provided that it serves as “effective and safe communication or navigation aid for a child with autism.”

Originally, the proposed regulations would have also required states to establish safeguards for ensuring that ABLE funds are only used for qualifying expenses, presumably by requiring beneficiaries to obtain pre-approval before distributing funds. In response to a backlash from disability advocates, many who feared that such requirements would be unduly burdensome, the Treasury Department and IRS rescinded this requirement in a notice issued November 2015  So as things stand now, you don’t need to get approval to withdraw funds and pay for a qualified disability expense.

To protect against future inquiries from the IRS, the ABLE National Resource Center recommends that beneficiaries maintain detailed records of expenses paid for by ABLE account assets, as well as how these expenses relate to their disabilities in case the expenditures are ever questioned by the IRS.  Misuse of ABLE account funds could result in tax penalties and possible loss of public benefits.

For help in setting up an ABLE account or to find out whether something you want to use the account for is a qualified disability expense, please reach out to us and we will be more then happy to help!