Who Can Benefit from an ABLE Account?

InspireHer: Plancorp Women’s Initiative | Family Finances

 InspireHer By: InspireHer

All families face challenges when funding the various needs of their children. But many families face a completely different challenge—planning for a child with a disability. The importance of saving and planning increases tremendously when faced with such a challenge.

The New Option: ABLE (Achieving a Better Life Experience) Accounts

Families with a child with a disability historically have not had many tools to help plan for the future. However, this summer, states began to make available a designated account to help prepare for the future of individuals with a disability. These state sponsored plans—similar to 529 education savings accounts—allow families with a child with a disability to set up a tax-advantaged savings plan for that child’s benefit.

By making these accounts available to families who need them, the states are providing a much needed tool in planning for the future. In the past, one of the only viable options families had was to create a Special Needs Trust for the benefit of the individual with a disability. However, such Trusts require legal and administrative fees. Though this new account reduces the administrative burden of planning for an individual’s future, ABLE accounts won’t remove the need for a Special Needs Trust. Instead, it can be used to supplement the Trust.

What is an ABLE Account?

The beneficiary of the account will be the account’s owner, and all income earned by the account will be tax-free. Anyone can contribute to the account, and some states offer tax deductions for the contributions. The account can be used to fund any “qualified disability expense” incurred by the beneficiary.

While the tax-free income is beneficial to the beneficiary, it doesn’t compare to the fact that ABLE accounts do not affect eligibility for Social Security, Medicaid or other public benefits. Historically, to qualify for these benefits, individuals with a disability needed to have less than $2,000 in savings or retirement funds. And yet, the public aid provided through these programs is often not substantial enough to support the unfortunate high costs that coincide with having a disability—transportation, accessible housing, assistive technology, etc.

The ABLE accounts have a maximum annual contribution of $14,000—no matter how many people are contributing to the account. There is also a maximum account balance set by the state in which the account is sponsored. However, an individual’s Social Security benefits are suspended when the account balance is greater than $100,000. The benefits can be reinstated after the account balance drops back below $100,000. The key is that the account will not disqualify the individual from Medicaid benefits.

Who can benefit from an ABLE Account?

To qualify for the account, the disability onset must be before the individual’s age 26. If the individual meets the age requirement, he or she must meet one of two other criteria:

  • Currently receive Social Security Income and/or Social Security Disability
  • Meet Social Security’s criteria for "significant functional limitations" and produces a letter of certification from a licensed physician

While the consensus is that these accounts won’t replace current strategies for funding the needs of an individual with a disability—i.e. a Special Needs Trusts—the ABLE 529 Plan will provide families with a supplemental option to help plan for the future of an individual with a disability.

Disclosure:

This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

This post was written by a member of the Plancorp Women’s Initiative, which strives to advocate for clients and women in the community by addressing topics specific to their financial lives. For more information about the Women’s Initiative and how you can get involved, email sara@plancorp.com or visit the Plancorp Women’s Initiative page.

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