Are you considering an ABLE account for yourself or a loved one? The ABLE Act was signed into law to help people with disabilities to create tax-advantaged savings accounts. The money in the account can be used for disability-related expenses. In this post, we will provide you 5 reasons to consider an ABLE account for yourself or a loved one that qualifies.
In this article:
- What is an ABLE account?
- 5 Reasons to Consider an ABLE Account
- How to Choose an ABLE Account
What is an ABLE account?
In 2014, the Achieving a Better Life Experience (ABLE) Act was signed into law.
The ABLE Act allows people with disabilities to create tax-advantaged savings accounts called ABLE accounts.
ABLE accounts are meant to supplement, replace, benefits provided through private insurance, Medicaid, Supplemental Security Income (SSI) benefits, employment, and other sources.
The money in ABLE accounts can be used for qualified disability-related expenses, such as education, housing, and transportation.
However, there are limits on how much can be deposited into your ABLE account in a single calendar year.
Also, if the total amount in your account goes over $100,000, your SSI benefits stop until the balance falls below $100,000.
5 Reasons to Consider an ABLE Account
If you are considering an ABLE account for yourself or a loved one, here are five things you should know:
1. An ABLE account will not impact your eligibility for benefits
One of the key benefits of an ABLE account is that it allows individuals with disabilities and their families to build savings without losing eligibility benefits.
That is because many means-tested programs have asset limits of $2,000, which can force individuals with disabilities to sacrifice income and savings.
Having an ABLE account will not have an impact on Medicaid edibility, and the first $100,000 saved in ABLE accounts is exempt from SSI income eligibility tests.
2. Anyone can contribute to an ABLE account
Contributions to ABLE accounts can be made by anyone including the beneficiary, family, friends, or even neighbors.
However, there is an annual limit of $14,000 for each individual contributor.
Also, the total limit of contributions to an ABLE account will vary by state, and for recipients of Supplemental Security Income recipients, there are some limitations.
3. You can have both ABLE account and Special Needs Trust
Generally, an ABLE account does not replace a Third-Party Special Needs Trust (SNT) but rather works in conjunction with an SNT.
For some people, there is a benefit to having both a Special Needs Trust and an ABLE Account.
For example, ABLE accounts have an annual limit of $15,000, so if a person with a disability is receiving a large inheritance or settlement, a Special Needs Trust would be the appropriate choice.
Furthermore, ABLE accounts are subject to the Medicaid-payback provision whereas third-party SNTs are not.
However, ABLE accounts are easier and less expensive to establish and maintain, so some people might start with an ABLE account and then add an SNT later.
4. You can use an ABLE account to pay for Shelter Expenses
One important feature of ABLE accounts is that they can be used to pay shelter expenses, including rent and utilities for the beneficiary of the account.
On the other hand, SNTs cannot be used to pay for shelter expenses.
However, an SNT is permitted to contribute to an ABLE account.
Therefore, using a Special Needs Trust together with an ABLE account can be a good way to pay shelter expenses.
5. ABLE account funds can be used for any expense related to living with a disability
Finally, one of the top reasons to consider an ABLE account is that funds can be used for a broad range of expenses related to living with a disability.
This can include basic living expenses, education, assistive technology, hiring personal care attendants, accessible housing, healthcare costs, transportation, and much more.
How to Choose an ABLE Account
ABLE accounts are now offered in 41 states and the District of Columbia. Most states let residents of any state open an account.
You can only have one ABLE account per person, but you can switch from one plan to another.
How much do you need to open an ABLE account?
You can generally open an account with as little as $25.
In addition, some plans have no annual fees, while others have small monthly account maintenance fees (usually around $2 a month).
Tax Benefits of an ABLE account
You may get a state income-tax deduction or tax credit if you contribute to your own state’s plan.
About 18 states offer an in-state tax deduction or incentive for residents to contribute to ABLE accounts.
Most plans offer a money market account for short-term savings.
In addition, there are plans that let you choose from a handful of mutual fund portfolios based on different risk levels.
You can compare features for each state’s plan through the ABLE National Resource Center’s website. Click here to be taken there.
What is an ABLE Account Summary
We hope this post on reasons to consider an ABLE Account was helpful.
If you have further questions about ABLE accounts, please let us know in the comments section below.
Be sure to check out our other articles on Social Security including How to apply for SSI Benefits, What is SSI Eligibility Criteria?, SSI Benefits Calculator, June SSI payments Schedule, Social Security Questions, and Answers, and What is an Able Account?