Are you Reaping the Benefits of an ABLE Account?

There are several circumstances in which an ABLE account may be particularly useful. For example, an ABLE account would allow an individual with disabilities to save unspent work earnings or Social Security benefits for a future purchase without violating the general rule that the recipient of SSI and Medicaid cannot accumulate more than $2,000. Funds remaining in a first party SNT are subject to Medicaid payback for services performed throughout the beneficiary’s life. A first party SNT may be established by the beneficiary, their parents, grandparents, conservator/guardian or the court. A third party SNT may be established by anyone except the beneficiary.

Each individual and family will need to project possible future needs and costs over time, and to assess their risk tolerance for possible future investment strategies to grow their savings. Account contributors or designated beneficiaries are limited, by the ABLE Act, to change the way their money is invested in the account up to two times per year. Like state 529 college savings plans, states do offer qualified individuals and families multiple options to establish ABLE accounts with varied savings and/or investment strategies. Each individual has the opportunity to assess possible future needs and costs over time, and to assess their risk tolerance for possible future investment strategies to grow their savings. ABLE account owners are limited, by the ABLE Act, to change the way their money is invested in the account up to two times per year.

Benefits Planning

In those states that have adopted special state income tax benefits, improper withdrawals might also incur additional state tax penalties. ABLE accounts can be created and managed by the beneficiary, subject to capacity. If they need assistance, the account can be established and/or managed by their parents, conservator/guardian or agent under a power of attorney. Severely disabled individuals often need these government services, especially after their parents die or can no longer care for them. Advocates for the disabled have long argued that the $2,000 cutoff effectively punished those whose families planned ahead. Third-party contributions by an employer to an ABLE account is not counted as “income” by federally funded means tested benefit programs if the contribution does not represent earnings or a bonus.

• The account owner, family, friends, an employer or the account owner’s Special Needs Trust (SNT) may contribute funds into the account.
• Qualified ABLE programs offered by other states may provide their residents or taxpayers with state tax benefits that are not available through the Attainable Savings Plan.
• While an individual of any age may hold an ABLE account, the beneficiary of the account–the account holder–must have incurred a qualifying blindness or disability before becoming 26 years old.
• You can be over the age of 26, but must have had an age of onset before your 26th birthday.
• While the original law passed in 2014 did stipulate that an individual had to open an account in their state of residency, this provision was eliminated by Congress in 2015.

A designated beneficiary is limited to only one ABLE account at a time; however, the money in an ABLE account can be used for disability expenses over the lifetime of the beneficiary. Like 529 savings plans, ABLE account owners can make changes to their investments two times per year. In 2020 and 2021, the total annual contribution by all participating individuals for a single tax year is the gift tax exemption of $15,000.

Updated Investor Bulletin: An Introduction to ABLE Accounts

Contributions to an ABLE account aren’t deductible, but amounts in the account grow on a tax-deferred basis. Distributions are tax-free up to the amount of the designated beneficiary’s qualified disability expenses, a term that is broadly defined to include basic living expenses, such as housing, transportation, and education, as well as medical necessities. ABLE accounts and special needs trusts, also known as supplemental needs trusts, both give people with disabilities a way to save money tax-free. By saving money in an ABLE account or supplemental needs trust (SNT), you can also make sure that a disabled person continues to be eligible for public programs.

The additional contributions are limited to the lesser of (1) the previous year’s poverty line for a one-person household, currently $12,060 or (2) the designated beneficiary’s taxable compensation for the current year. Before investing in any ABLE program, you should consider whether your home state offers an ABLE program that provides its taxpayers with favorable state tax or other benefits that are only available through investment in the home state’s ABLE program. You also should consult your financial, tax, or other adviser to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to directly contact your home state’s ABLE program, or any other ABLE program, to learn more about those plans’ features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision. If you have a job, you can save money in your ABLE account without any changes in your benefits.

What are Qualified Disability Expenses?

Contributions are not tax deductible for federal income tax purposes, but your investments can grow tax free and remain so when withdrawn and used for disability-related expenses. Similar to 529 college-savings plans, ABLE programs are administered by the states. Many states have established ABLE programs and you may have the option to choose your own state’s plan.

Save for today’s needs or invest for tomorrow in a tax-advantaged ABLE account that won’t impact the means-tested benefits critical to many with disabilities. Working account owners who do not participate in an employer-sponsored retirement plan may be eligible to contribute above the annual ABLE contribution limit. In closing, ABLE Accounts serve a tremendous benefit for many individuals with disabilities and can help promote their short-term and long-term growth and development. https://turbo-tax.org/ There should be research and discussion within the family or with the disabled individual in determining whether or not an ABLE Account is an applicable means of planning specifically for your disabled loved one. Funds in ABLE accounts can be used to support your employees’ ability to work, and increase their productivity and ability to get to and from work. The savings may be used for emergencies or other sudden expenses which could create challenges in continuing to work.

Be a catalyst for change by donating today to support National Disability Institute’s innovative projects and research that help build a better financial future for people with disabilities and their families. NDI is a 501(c)3 organization and all donations are tax deductible. The ABLE National Resource Center (ABLE NRC) https://turbo-tax.org/new-able-account-advantages/ was founded, and is managed, by National Disability Institute to provide reliable information about ABLE programs and accounts. The ABLE NRC offers all of the latest information on ABLE, including state-by-state program updates, informational videos, webinars, policy summaries and answers to frequently asked questions.

It’s also important to realize that you don’t need to choose between an ABLE account and an SNT. These accounts are best used for different purposes, despite having some characteristics in common. As well as the fundamental differences mentioned above, these accounts differ in several other ways. These features may make a big difference to you, depending on your situation. NDI cannot guarantee the accessibility of materials on third-party websites.

Special Needs Trust vs. ABLE Account

Meanwhile, the person or party that creates the trust has some reassurance that the proceeds will go to expenses they stipulate. SNTs are irrevocable and their assets cannot be seized by creditors or by the winner of a lawsuit. Most public assistance programs for people with disabilities have income and asset restrictions—if a disabled person earns too much or has too much money in savings, they will no longer be eligible for these benefits.