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People with disabilities face significant financial challenges, as do their families. A CDC (Centers for Disease Control) study found that people with disabilities were more likely to live in poverty and be out of the workforce than their non-disabled peers. A relatively new savings vehicle is now available to help families meet those challenges. It is called an ABLE — for Achieving A Better Life Experience — Account. Then-President Barack Obama signed the ABLE Act into law in 2014, and 2016 was the first year in which Able Accounts were available to all qualified beneficiaries.
What an ABLE account is and who qualifies
ABLE Accounts are a type of Section 529 plan (529A), and so resemble the educational savings plans of the same numerical title. People can contribute to the account and the investment income accumulates free from federal income tax. Beneficiaries, per the IRS, do not have to pay taxes on these distributions.
These vehicles also stand out for what doesn’t disqualify you from eligibility: how much you can afford to save. A disabled person can be denied help from means-tested programs such as Medicaid (healthcare) and Supplemental Security Income (SSI) if they have more than $2,000 in most savings vehicles. With ABLE Accounts, by contrast, a beneficiary can amass as much as $100,000 in an account before SSI payments are suspended.
Provisions vary by state
Up to $14,000 in contributions annually can be deposited into these accounts, and from multiple sources, if you wish. For example, a grandparent might donate $7,000 to the account each year, and a parent another $7,000. The maximum balance allowed in an ABLE account varies by state. For instance, Kentucky limits the size of an ABLE account to a maximum of $350,000, while Virginia has an account limit of $500,000. Unlike 529 college savings plans, a beneficiary is only permitted to have a single ABLE Account.
At the moment, only nine states offer ABLE Accounts. Fortunately, in at least one of those states, Ohio, where the first ABLE program was offered, residents of any state can participate in the program. That allows people who live in the many other states where ABLE programs are absent (or still under development, as in New York and Illinois), can invest in Ohio’s plan if they want to start saving.
But not all provisions of the Ohio plan are the same for Ohioans and non-Ohioans. For example, those who participate from outside the state pay higher administrative fees; between 0.45% and 0.60%, compared with 0.19% and 0.34% for Ohio residents.
Features also vary by state. States such as Ohio have a debit card available for beneficiaries to use on qualifying expenses. The number of investment options, and their levels of risk, also range depending on the state. Also, the investment choices vary in riskiness so people need to think about their risk tolerance. One option might have higher fees than another option in the same state so investors need to examine the costs carefully.
Why it is important and uses of funds
When a person saved money for a loved one with a disability in the past, those funds counted against eligibility for means-tested programs such as Medicaid (healthcare) and SSI (Supplemental Security Income). An individual, even a disabled one, could not have more than $2,000 in savings to access these public resources. The practical implication of these rules is that disabled people had to be poor, and stay poor, to access these programs. Disabled Americans from middle-class families were cut off from these resources.
ABLE Accounts reflect a change in thinking. A beneficiary can have up to $100,000 in an account before SSI payments are suspended. Disabled persons must no longer be poor to access benefits that people pay for with middle-class taxes.
Families can set aside money for a disabled loved one, and the funds go to disability-related expenses. These costs include:
- Healthcare expenses (not covered by Medicaid or a private insurance plan)
- Assistive technology
- Financial management
- Personal Assistance
Regarding housing expenses, the Social Security Administration (SSA) considers mortgage, rent, and utilities (such as water, gas, and electricity are all considered "qualified disability expenses" with regards to housing.
A great new idea
Disabilities impose many financial costs on disabled persons and their families. Wealthier individuals have long had the ability to establish a Special Needs Trust or Pooled Income Trust to assist their disabled loved ones. The ABLE Act recognizes that middle-class families with a disabled person also need a savings plan. ABLE Accounts are an excellent step toward helping people struggling with disabilities to stay in the middle class.