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In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, which established a savings plan that helps those with disabilities pay for expenses related to their disability without risk of losing their public benefits, also known as ABLE accounts. To better understand how they work, let’s look at the basics of ABLE accounts and how you or a loved one might benefit from one.
ABLE accounts, also known as a 529A account or 529 ABLE, are tax-advantaged savings accounts, which means any earnings made by the account will not be taxed. Unlike special needs trusts, Miller trusts or other estate planning tools, the individual with the disability is typically the account holder and can manage their own funds as they see fit, so long as they comply with the purpose of the account. ABLE accounts are provided for under federal law. However, they are administered according to state law and individual states may have different rules, such as:
- Minimum amounts to set up an account
- Administrative costs and fees
- Account limits
- Allowing non-residents to open an account
- Types of investment options
It is important to note that not all states offer ABLE accounts but even if you live in a state where ABLE accounts are not provided, you can still check programs for other states and find one that allows out-of-state claimants to open an account. You can compare ABLE accounts in different states here .
Individuals with disabilities often have more expensive needs associated with their disability, such as:
- Modifications to their homes to make them wheelchair-accessible
- Medical and assistive devices, such as crutches, wheelchair lifts and hearing aids
- Modifications to or specially-equipped vehicles
- Special medical treatments
- Expensive ongoing healthcare needs
Even though these individuals may have expensive needs, they are often prevented from keeping resources because they receive need-based public benefits, such as HUD assistance, Medicaid, SSI and SNAP.
Only individuals who had a disability before they were age 26 are eligible to set up an ABLE account. There is an annual and a cumulative limit for how much money can be kept in an ABLE account. The annual contribution is typically limited to the value of the gift tax exclusion; however, some states allow the account holder to also contribute up to the total amount of their earnings to the account.
While ABLE accounts can provide access to valuable resources, they can also be risky if you don’t know how to use them properly. If you or a loved one is considering opening an ABLE account but require extra assistance, try reaching out to a financial advisor or lawyer for help.
For more information on understanding ABLE accounts, access the full article here.
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