Until very recently, disabled individuals found themselves in a delicate situation when it came to their long-term financial security. The same often applied to families raising children with disabilities. While they might qualify for state and federal aid programs, such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), and Medicaid, they could only receive the full benefits of each if their assets were less than $2,000. Since these programs often fund access to assisted living technologies and services, healthcare, and transportation, disabled individuals were essentially forced to remain poor or lose their benefits.
Luckily, this antiquated approach is slowly changing, thanks in large part to the Achieving a Better Life Experience (ABLE) Act. The ABLE Act amended parts of the federal tax code beginning in 2015, allowing states to establish tax-advantaged savings programs for individuals with disabilities and their families. Importantly, the assets don't count against the $2,000 resource limit for SSI until they total $100,000.
The programs are still relatively new, and information can be a little difficult to come by. So here's what you need to know about ABLE Savings Programs, based on my recent experience establishing one for my younger autistic brother in Pennsylvania.
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1. Who's eligible for an ABLE Savings Account?
Any individual who became disabled prior to their 26th birthday is eligible for an ABLE Savings Account (this doesn't exclude people over the age of 26 from having an account as long as the age of onset occurred before their 26th birthday).) Someone who meets that requirement and is already receiving SSI is automatically eligible, although even individuals not currently receiving benefits from Social Security can maintain accounts if they meet the program's requirements concerning significant disabilities and can produce a letter from their doctor.
It's also important to note that the "account owner" does not need to be the person eligible to open or manage an ABLE Savings Account, and can instead be an "authorized individual", such as a parent or guardian. Many states also allow for multiple "authorized agents" to have varying or equal levels of control over the account, which provides flexibility for different situations.
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2. What are the benefits of an ABLE Savings Account?
There are quite a few. While the specific details vary by state, the broader advantages are the same throughout the country. In fact, they have a lot in common with the 529 College Savings Program, which served as the model for the ABLE Savings Program, including:
- Shielded from Social Security: The assets in an ABLE Savings Account won't be counted when determining an individual's eligibility for SSI until the account balance reaches $100,000 -- which is much better than the current $2,000 public benefit resource limit. And most states allow an account balance to exceed $300,000, with some setting a ceiling at over half a million dollars.
- Flexible growth: An ABLE Savings Account can be used purely as a savings account with an attached debit card; as an investment portfolio (through low-cost funds managed by Vanguard, Blackrock, or the like); or a combination of the two. The balance grows tax-free.
- Tax-advantages: Up to $15,000 of state tax-deductible contributions can be made to a single ABLE Savings Account in a single tax year. That makes it a smart way to fund services and technologies you might already pay for when raising a disabled child, or things for yourself. Some states also protect account balances from inheritance taxes, eligibility decisions for student financial aid, and the dreaded Medicaid repayment requirement.
- More accessible than a Special Needs Trust: An ABLE Savings Account differs from a Special Needs Trust (SNT) in important ways, so one cannot necessarily replace the other -- and they can even be used in conjunction with one another. However, an SNT is usually established with a minimum initial contribution of $10,000 plus legal fees. An ABLE account, on the other hand, can be started with as little as $25 in most states.
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3. How can the money be used?
While any funds withdrawn from an ABLE Savings Account must be used for "qualified expenses," the IRS has decided to broadly interpret that term, so there's some fogginess in defining what qualifies and what doesn't. Generally, qualified expenses include:
- Educational expenses for preschool through college, including tuition, books, and supplies.
- Transportation expenses, including mass transit passes, moving expenses, and even the purchase of a vehicle.
- Job-related training expenses.
- Almost any medical expense, including insurance premiums, communication services and devices, long term supports, nutritional management, and more.
- Assistive support expenses, such a computer for a child with autism.
- Various miscellaneous expenses ranging from legal fees to funeral expenses.
Additionally, housing expenses, such as rent or even the purchase of a home, can be considered qualified expenses -- but these have the potential to affect SSI eligibility, so there's a little more homework you should do before getting too carried away with this category of living expenses.
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4. Who can contribute to an ABLE Savings Account?
Anyone -- the account owner, the authorized individual, any authorized agents, family and friends, your local barista -- can make a contribution to an ABLE Savings Account. There are ways to establish recurring contributions to automate savings, or to make one-time contributions.
There are two important considerations, though. First, contributions are only tax deductible for an individual paying state income taxes in the same state in which the ABLE Savings Account is established. So someone living in California can contribute to a loved one's account in Florida, but won't be able to reduce their state income tax burden by doing so. Second, the total contributions made in a single tax year cannot exceed $15,000 (for 2018). So whether one person is contributing or dozens of family members are, the total contribution limit is the same.
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5. Every state is working on an ABLE Savings Program
While the ABLE Act was signed into law for the 2015 tax year, it took states a little time to change their own laws and put the pieces into place. The good news is that all 50 states have either established or are working on creating ABLE Savings Programs for their citizens. The bad news is that 14 states (Arkansas, California, Connecticut, Delaware, Hawaii, Idaho, Maine, Mississippi, New Jersey, North Dakota, South Dakota, Utah, Washington, and Wisconsin) are still in the process of establishing programs.
To see the details of your state's ABLE Savings Program or the timeline for implementation, visit the ABLE National Resource Center.
A big step in the right direction
The creation of ABLE Savings Accounts finally provides a common sense approach to providing care and long-term financial security for disabled individuals, whether that's you or a loved one.
While the specifics of establishing an ABLE Savings Account vary from state to state, most accept digital applications and opening an account is relatively straightforward. Given the advantages and ease of access -- and the fact that the first $100,000 in assets don't affect eligibility for SSI -- these new savings plans should become a powerful tool for individuals and families facing financial burdens from disability management.
