Planning matters

Are you “ABLE” to utilize an ABLE account?

An ABLE account, also known as a 529 ABLE or 529A account is a state-run savings program for eligible people in the United States.

The ABLE Act, also known as the Stephen J. Beck Jr. Achieving a Better Life Experience Act of 2014 is first of its kind legislation that recognizes the significant costs associated with living with a disability. These costs can include raising a child with significant developmental challenges or the expenses a working-age adult may have in order to have access to appropriate housing, transportation, personal care, assistive technology or health care not covered by insurance. The ABLE Act allows eligible individuals and their families to establish savings accounts that will not affect their eligibility for benefits.

The language of the legislation explains that an ABLE account will along with private savings “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement but not supplant, benefits provided through private insurance, Medicaid, SSI, employment or other sources”

Millions of people who experience disabilities and their families depend on a number of public benefits for income, health care, food and housing assistance. Benefit eligibility for these programs (SSI, SNAP, Medicaid) requires the person with a disability to have no more than $2,000 in cash savings, retirement funds or other types of assets. To remain eligible for benefits, recipients must remain poor.

The ABLE Act limits eligibility to individuals whose disability impacts them significantly and with onset before age 26. If you meet the age criteria and are already receiving SSI or SSDI benefits, you are automatically eligible. The beneficiary of an ABLE account is also the account owner. Income earned in the account is not taxable and contributions to the account can be made by ANY person using after-tax dollars. Contributions are not federally tax deductible, but some states allow for a state tax deduction.

The total amount individuals can contribute in a single tax year into an ABLE account is currently $15,000. The total amount that can be contributed to an ABLE account over time is determined by the state in which the account is established.  Many states have set this limit at $300,000, but if you are receiving SSI, you will be limited to $100,000 or risk losing your monthly benefit. An ABLE account owner/beneficiary does not have to reside in the state where the account was opened, but they do have to abide by the rules and contribution limits determined by the plan. If the beneficiary/account owner dies and was receiving Medicaid, the state in which they reside may file a claim for all or a portion of the funds in the account, known as “Medicaid-Pay-Back”.

Like state 529 college savings plans, there are multiple options to establish ABLE accounts with a variety of investment options. A projection of possible future needs and costs should be done to determine how much risk to take in making investment choices. Changes in the way money is invested can be made no more than two times a year.

An ABLE account is different than a special needs trust in that an ABLE account offers more choice and control for the beneficiary and their family.  The cost of establishing an ABLE account is much less than creating a Special Needs Trust and ABLE accounts offer owners the ability to control their own funds and if their circumstances change, have more options available to them.

As of January of this year, there are over 30 different ABLE programs available to eligible individuals.  Most allow enrollment regardless of what state you live in. It is important to find a plan that best meets your needs.  The primary factors to consider are:

  • What do I need to open an account?
  • What are the fees and costs to maintain the account?
  • What are my investment choices?

If you are interested in learning more about ABLE accounts or have a loved one who may benefit from establishing one, contact your planner to start the conversation.

Written By Jeri Boston