In 2014, lawmakers approved the Achieving a Better Life Experience Act (ABLE) after disability advocacy organizations spent almost ten years lobbying for it. This law allows tax-advantaged accounts for individuals with disabilities (like 529 accounts for college) without running the risk of losing their government benefits.
As EisnerAmper Wealth Management and Corporate Benefits LLC managing offer Marc Scudillo explained, “The advantage of using an ABLE account is that the income will not be used for means testing for (Supplemental Security Income) or Medicaid.”
Despite their advantages, few people take advantage (or fully understand) of ABLE accounts. Data from the National Association of State Treasurers shows that Americans have opened fewer than 57,000 accounts.
If you or somebody you know has a disability, US News My Money explains what you need to know about ABLE accounts.
What Is The Purpose Of An ABLE Account?
“Living with a disability can be costly, hence the reasoning behind ABLE accounts,” Matt Schechner, New York-based Essential Advisory Services president and founder, said.
Those with disabilities might encounter out-of-pocket medical costs or extra charges associated with education, housing, or transportation. Simultaneously, they could be government benefits beneficiaries. Programs like Medicaid or Supplemental Security Income (SSI) usually restrict recipients’ assets to $2,000. Before 2014, this meant people with disabilities could not save their money without losing their benefits.
“The ABLE account is the way a person can have assets that they control,” Scott Butler, a retirement income planner at Maryland-based Klauenberg Retirement Solutions, explained. ABLE account funds don’t count as assets up to a certain amount.
Who Qualifies For An ABLE Account?
A person must be considered blind or disabled before age 26 to be eligible for an ABLE account. SSI or Social Security Disability (SSD) recipients automatically qualify. Other people must fulfill the Social Security’s criteria of a disability and have written confirmation from a doctor, the ABLE National Resource Center notes.
Which States Provide ABLE Accounts?
So far, 42 states and Washington, DC provide ABLE accounts. But even if your state doesn’t extend this benefit, you might be able to open an account in another state. Currently, 26 states let non-residents open ABLE accounts, while the rest restrict their programs to residents only.
Do ABLE Accounts Have Tax Benefits?
Similar to 529 accounts, ABLE programs are operated by state governments, with some providing state tax benefits to residents.
For example, Michigan and Arkansas let single filers deduct ABLE contributions up to $5,000 when they file state taxes. Joint filers living in the same state have a $10,000 deduction limit. On the other hand, Illinois provides state income tax write-offs up to $10,000 and $20,000 for individuals and spouses, respectively. Meanwhile, Kansas caps deductions at $3,000 for single filers and $6,000 for joint filers. New York, California, and some others do not extend tax benefits.
Usually, deductions are exclusive to residents contributing to their state’s ABLE program. Because contributing to an account in a different state won’t offer any tax advantages, Butler notes that individuals should assess whether other plans have more affordable fees and favorable investment alternatives. That’s because “Sometimes it’s better to pick a different plan than to get that tax (deduction).”
No matter which state you select, you don’t pay taxes on ABLE account distributions as long as the funds go toward eligible expenses connected to the recipient’s disability.
How Much Can You Contribute To An ABLE Account?
You can make up to $15,000 worth of contributions annually. Although anyone can contribute, you should note that the ABLE law only protects up to $100,000 from government audits for benefits programs. If it’s over $100,000, it could affect your SSI benefits,” Butler cautioned.
What Expenses Can You Cover With ABLE Account Funds?
ABLE account funds can be spent on various expenses related to the beneficiary’s disability, including medical treatment, housing, assistive devices, education, and transportation. Additionally, withdrawals spent on ineligible expenses could be liable to a 10% penalty as well as regular income taxes.
How Much Do ABLE Accounts Cost?
Each state charges its own fees, so you should do your research. For example, it costs $30 per year for Ohio residents, while non-residents pay $42. New York, which bars non-residents from opening an account, charges $45, or $55 if the recipient receives paper statements
Moreover, ABLE accounts might be subject to investment fees, which can vary based on the funds you select for your money. “ABLE accounts have account service fees, which keep ABLE accounts up and running, and an asset management fee, which compensates managers for choosing stocks and managing the portfolio,” Schechner explained.
Every state has its own investment options, so it would help if you compared each one to find the best plan for you.
- LaPonsie, Maryalene. “Everything You Need to Know About ABLE Accounts.” U.S. News & World Report, U.S. News & World Report, 18 Feb. 2020, money.usnews.com/money/personal-finance/saving-and-budgeting/articles/everything-you-need-to-know-about-able-accounts.