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You may have heard of an ABLE account but what exactly is it? ABLE stands for Achieving a Better Life Experience and was created in 2014 by the ABLE Act. An ABLE account is very much like a 529 plan however, there are some key differences we will get into later. The purpose of the ABLE account is to allow families to set aside money for the benefit of their child to cover the costs of qualified disability expenses. According to The National Resource Center for Achieving a Better Life Experience, Eligibility for these public benefits (SSI, SNAP, Medicaid) require meeting a means/resource test that restricts eligibility to individuals with less than $2,000 in liquid resources, such as cash savings, non-ABLE checking and savings accounts and some retirement funds. To remain eligible for these public benefits, an individual must remain poor. For the first time in public policy, the ABLE Act recognizes the extra and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working-age adult with disabilities, accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare. For the first time, eligible individuals and their families will be allowed to establish ABLE savings accounts that will largely not affect their eligibility for SSI, Medicaid, and means-tested programs such as FAFSA, HUD and SNAP/food stamp benefits.
Supplemental social security is only $841/month in 2022. This is often not enough to cover room and board let alone items such as internet, transportation, a phone or therapies not covered by insurance. Due to this incredibly low level of support, families struggle to supplement their child’s lifestyle while not impacting the governmental aid they can receive. Prior to the 2014 Act the only way to supplement a disabled persons lifestyle was through a Supplemental Needs Trust, also known as a Special Needs Trust. That leads us to our first question and the one I am asked the most…….
Does an ABLE Account replace the need for a Special Needs/Supplemental Needs Trust?
To put it simply no! A trust is a crucial estate and disability planning tool. Without a properly structured trust, inheritances or other gifts and income could jeopardize governmental benefits. If this occurs and social security and Medicaid go away, any gift or inheritance could be used up very quickly. An ABLE is just another tool in our toolbox for planning purposes. An ABLE account can only have a balance of $100K or less without impacting governmental benefits. An inheritance could exceed this amount.
So, If I have a Special Needs Trust Established why do I need an ABLE Account?
In many cases a trust is sufficient, however, you can never have too many tools in your toolbox. Establishing an ABLE account is quite easy and inexpensive when compared to the Special Needs Trust. And an ABLE can do a few things a Special Needs Trust cannot. For one there are tax benefits. In many states you can receive a state tax deduction on funds you contribute to a beneficiaries ABLE account. Additionally, these funds grow tax free as long as they are used for qualified disability expenses. That is where my favorite part comes in. Included in the list of qualified disability expenses is housing. A Special Needs Trust is, by definition, a Supplemental Needs Trust. It is meant to supplement social security which is to cover room and board. If a parent or a trust helps to offset the cost of housing, Social Security will be reduced thus limiting housing room and board to less than $841 per month. It is extremely hard to find housing and food for under $841, especially here in Northern Virginia. However, The ABLE account allows for housing expenses in its list of “qualified disability expenses.” This is a huge win for many families and their loved ones.
Key Points to Remember
1. Unlike a 529 Plan, a disabled person can only have one ABLE account. Each parent or grandparent cannot have an account for the disabled child/adult. However, they can all contribute to the same account
2. Each Donor/Contributor can contribute 16K per year (annual gifting limit) to the account however the account cannot exceed 100K without complications.
3. 529 Plans and ABLE accounts often both have state tax deductible amounts, however, they are not always the same. In many cases the deductibility is less for an ABLE account compared to a 529.
4. In order to be eligible to for an ABLE Account you must have a diagnosed disability prior to the age of 26.
5. Each state establishes their ABLE program as they do for a 529. A financial advisor can illustrate your account and investment options available in your state.
For more information please visit:
The National Resource Center Home – ABLE National Resource Center (ablenrc.org)
ABLE America ABLEAmerica – American Funds | Capital Group
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.