Legal arrangements such as guardianships and conservatorships are available to individuals with developmental disabilities who…
A Guide to ABLE Accounts and Disability
Although society has adapted to meet the needs of those with disabilities, living with a disability has its own unique challenges and adversities. One challenge major challenge is financial strain. There are significant additional costs associated with disabled living. However, The Achieving a Better Life Experience Act of 2014, or the ABLE Act, helps to alleviate the financial strain.
What is an ABLE account?
ABLE accounts are tax-advantaged savings accounts for those with disabilities and their families. The accounts are a result of the ABLE Act of 2014, which was established to help those with disabilities cover qualified expenses. Income earned by these accounts is not taxed, and the beneficiary is the account owner. Anyone can make contributions to these accounts. However, the contributions must be made with post-tax dollars and are not federally tax deductible. The money in the account withdrawn by the beneficiary is not taxed if used to pay for qualified disability expenses.
Why are ABLE accounts needed?
Many living with disabilities depend on public benefits for health care, income, housing, and food assistance. Programs like Medicaid, SNAP, and SSI require passing a means/resource test. This test, or qualification, will only approve those with liquid resources totaling less than $2000. Essentially, qualifying and remaining eligible for these public benefits requires being asset poor.
The ABLE Act recognized and addressed the high cost associated with disabled living. Those eligible and their families can set up an ABLE savings account, where the funds will not affect their qualification for public assistance benefits, up to a certain amount.
How does an ABLE account work?
An ABLE account is similar to a 529 plan. The funds are invested, and the growth is un-taxed if distributions are used for qualified expenses. Qualified expenses include:
- Employment training
- Assistive technology
- Personal support services
- Health management services
- Financial or administrative services
- Legal fees
- Basic living expenses
- ABLE account management, monitoring, and oversight
- Funerals and burials
Who qualifies for an ABLE account?
To be a designated beneficiary of an ABLE account, you must meet one of the following qualifications:
- You or a parent/guardian have met the criteria for disability before the age of 26
- You qualify for childhood disability benefits, disability insurance benefits, or disabled widower’s/widow’s benefits on a disability that started before 26 years old.
- You qualify for SSI because of a disability with an onset before the age of 26.
Disabled adults can establish an ABLE account for themselves, or parents and guardians can do so on behalf of their disabled children.
What are the limitations of an ABLE account?
ABLE accounts have many benefits, but there are three main limitations and penalties to be aware of:
- If the money is withdrawn for a non-qualified expense, a 10% penalty can be applied by the IRS.
- Any contributions made by someone other than the beneficiary are subject to an annual gift tax exclusion limit. The limit in 2022 is $16,000 for individuals or $32,000 for a married couple filing jointly. ABLE account owners may be allowed to contribute over this limit if working.
- The funds in ABLE accounts won’t affect eligibility for public benefits up to a balance of $100,000. Once an account reaches $100,000, benefits may be lost.
What is the best way to establish an ABLE account?
It’s possible to open an ABLE account online for as low as $25. However, the programs vary from state to state, there are a multitude of different investment options to choose from, and the fees associated with plans differ greatly. With so many options available, it is best to seek professional guidance to ensure that you make the most informed decision when opening an ABLE account.
ABLE accounts offer financial security, independence, and better quality of life for those with disabilities. Understanding how to utilize and maximize the benefit of these accounts is essential for those with disabilities. We invite you to contact our offices in Midway, Erie, and Franklin PA to learn more about your options.