What is an ABLE account and how do you sign up? In this post, we will cover everything you need to know about ABLE accounts, including what you can spend it on, how much you can contribute to the account each year, eligibility rules, states that offer ABLE accounts, and more.
This post will cover:
- What is an ABLE account?
- Benefits of an ABLE Account
- Who is Eligible for an ABLE Account?
- What can an ABLE account be used for?
- How to Spend Money in your ABLE Account
- How to Open an ABLE Account
- Rules on Depositing Money in an ABLE Account
- States that have Able Accounts
- ABLE Account FAQ
What is an ABLE account?
ABLE bank accounts allow individuals who were disabled before age 26 to save money without losing eligibility for SSI disability or Medicaid.
The growth of the investments in the account is tax-free, and you can spend the money on disability-related expenses, like housing, transportation, or education.
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.
The video below, from theABLENRC does a great job of explaining the basics about an ABLE account.
The ABLE ACT
ABLE accounts are tax-advantaged savings and investment accounts for individuals with disabilities. They were created as a result of the passage of the Achieving a Better Life Experience Act of 2014, better known as the ABLE Act.
The ABLE Act is considered by many to be one of the most significant pieces of legislation for the disability community since the Americans with Disabilities Act, had overwhelming bipartisan support in both the Senate and the House.
This law was the result of nearly a decade-long grassroots effort.
This effort originated with a group of parents of children with disabilities who recognized the unfairness of not being able to save funds in their child’s name for fear of losing essential benefits.
Benefits of an ABLE Account
An ABLE account is a financial account with many benefits, including:
Save up money without losing benefits
Perhaps, the most important benefit of an ABLE account is the ability to save money without breaking resource limits on benefit programs.
Many government benefits programs have resource limits.
However, with an ABLE account, you can have up to $100,000 in savings and keep getting Supplemental Security Income (SSI) benefits, as long as you meet all other SSI rules.
If you go over $100,000, SSI benefits will stop, but they will start up again if your ABLE account drops back below $100,000 and you won’t have to reapply.
Build assets in an account that has tax advantages.
Your investments in an ABLE account won’t be taxed, so your wealth will grow faster.
In addition, if you work and save earned income in your account, you may qualify for the federal Saver’s Credit.
Use your savings on many types of expenses
There are rules about spending the money in your ABLE account, but there’s also a lot of flexibility.
Friend and Family Can Give you Money
The ABLE account allows family and friends to give you money without affecting your benefits.
Who is Eligible for an ABLE Account?
To qualify to use an ABLE account, an individual must have a disabling condition that began before age 26.
This requirement can be met by being entitled to disability benefits through SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) or by having a written diagnosis from a physician indicating that individual has a physical or mental impairment that:
- is medically provable
- results in severe limitations in functioning, and
- is expected to last at least a year or result in death.
Individuals over 26 can have an ABLE account as long as their disability began before they turned 26.
The video below, from theABLENRC does a great job of explaining ABLE account eligibility requirements.
ABLE Accounts and Specific Means-Tested Programs
Here is how the ABLE accounts affect these means-tested benefits programs specifically:
The Social Security Administration disregards the first $100,000 in ABLE accounts.
Only assets above $100,000 count against the resources limit.
Therefore, if an ABLE balance exceeds $100,000 the SSI payments are suspended until the account falls below the allowable limit.
A beneficiary’s Medicaid continues when an SSI recipient’s ABLE account exceeds $100,000 by an amount that causes the recipient to exceed the SSI resource limit–whether alone or with other resources.
The recipient retains eligibility for Medical Assistance (Medicaid) without a time limit as long as he or she remains otherwise eligible.
Medicaid Payback Provision
Assets remaining in an ABLE account upon the death of a beneficiary must be used to reimburse the state for Medicaid payments it made on behalf of the beneficiary.
What can an ABLE account be used for?
There are strict rules around what you can purchase with your ABLE account. These are called qualifying expenses.
Qualified disability expenses (QDE) are expenses made for the benefit of the designated beneficiary and related to his or her disability, including, but not limited to:
- Employment training and support
- Assistive technology and related services
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Expenses for ABLE account oversight and monitoring
- Funeral and burial
- Basic living expenses
From the above categories, expenses that qualify include:
- Electric bill
- Car repairs expenseS
- Health insurance premiums and copayments
- Lunch at a restaurant
- Toilet paper
It is important to keep receipts whenever you use your ABLE account to pay for a qualifying expense.
That is critical because if you are ever audited by the IRS, you’ll need to show them how you’ve used your money.
How to Spend Money in your ABLE Account
Once you have opened an ABLE program, you may receive a debit card that is linked to the account.
You can use that debit card whenever you pay for a qualifying expense.
Note that you do not need authorization to spend your money in your ABLE account.
However, it is your responsibility to make sure your expense qualifies and to keep records of the money you spend from your ABLE account.
Withdrawing Cash And Not Spending it on Qualifying Expenses
If you withdraw cash from an ABLE account, spend it on your qualifying expense.
However, if you don’t spend the money, it could be counted as a resource for benefits programs.
For example, if you take $3,500 out of an ABLE account and put it into a regular checking account instead of spending it, you will go over the resource limit for SSI.
Who Runs ABLE Programs?
While the federal government makes most of the rules around the program, ABLE accounts are only available in states that have passed laws and regulations to make them available.
Currently, 42 states and the District of Columbia offer ABLE accounts
Each state sets its own annual fees and investment options.
If your state doesn’t have an ABLE program, you may be able to open an account in another state.
States that have Able Accounts
For a list of states that offer ABLE account programs, see our post here.
Which States Have Open Programs?
Not all states open their ABLE programs to residents of other states.
However, about a dozen states have partnered with Ohio, the first state to launch an ABLE program, for their residents to use Ohio’s program at in-state rates.
To compare state programs against each other, click this link for a comparison tool.
How to Open an ABLE Account
There are a few main rules for opening an ABLE account:
First, you can only open an account through a state-designated program or institution. You can choose to open an account in another state’s ABLE program.
To find an ABLE account program or institution in your state or another state, click here.
Second, you can only open one ABLE account.
Also, you cannot open accounts in more than one state.
Third, you must have a disability that qualifies for an ABLE account and that began before you turned 26.
However, you can be more than 26 years old when you open your account – all that matters is when your disability began.
If you need help with your ABLE account, you can have another person, such as a parent or guardian, help manage the account.
Rules on Depositing Money in an ABLE Account
There are two limits on how much can be put in an ABLE account in a calendar year:
First, you are allowed to deposit up to $15,000 from any source. This includes money from your family and friends, your benefits, and other unearned income.
Second, you can deposit another $12,490 from your own earned income (if you have a job, say through the Ticket to Work Program).
This means that if you earn $12,490 or more, you could have a total of up to $27,490 go into your ABLE account in a year (that is $15,000 plus $12,490).
However, if you earn less than $12,490, the amount you could contribute would be lower.
ABLE Account FAQ
Here are the most frequently asked questions about ABLE accounts:
Am I eligible for an ABLE account?
If you developed a disability or blindness before the age of 26 and are eligible for SSI or SSDI benefits, or have a signed Diagnosis Form from a licensed physician, you can open an ABLE account.
Who can open an ABLE Account?
Anyone with an eligible disability or blindness diagnosed before the age of 26 can have an ABLE account.
If you’re over 18 years old, you can open your own account.
If you are not over 18 years old, an Authorized Legal Representative (ALR) can open an account for you.
Who is an Authorized Legal Representative (ALR) for ABLE account Purposes?
An Authorized Legal Representative is someone who is legally authorized under state and federal law to make decisions for the beneficiary.
You are an ALR if you have Power of Attorney, or are the Legal Guardian or Conservator for a beneficiary.
Also, if the beneficiary is under the age of 18, the ALR can also be the parent.
Who can open an ABLE account for an eligible beneficiary?
An adult beneficiary with a qualifying disability can open and manage an ABLE account.
If a beneficiary is under the age of 18 or unable to open an account on their own, they must have an Authorized Legal Representative (also known as an ALR) do it for them.
An ALR must be Power of Attorney, the Legal Guardian or Conservator for a beneficiary.
Also, if the beneficiary is under the age of 18, the ALR can also be a parent.
Can a Social Security Representative Payee open an account for a beneficiary?
If you’re an eligible beneficiary with a Representative Payee, you can open an account for yourself.
However, to have a Representative Payee open an account for you, they must meet the requirements of an Authorized Legal Representative.
This means the person must have Power of Attorney, Legal Guardian, Conservator, or parent of a beneficiary under the age of 18).
Note that because the role of Representative Payee is specific and unique to social security benefits, it doesn’t apply to ABLE plans without Limited Power of Attorney.
Can I still work and have an ABLE account?
Yes. You can still work and have an ABLE account.
With the ABLE to Work Act, you can even contribute up to an extra $12,140 to your ABLE account if you are working.
This is in addition to the yearly contribution limit of $15,000.
Comparing ABLE account versus Special Needs Trust
An ABLE Account will provide more choice and control for the beneficiary and family.
In addition, the cost of setting up an ABLE account will likely be considerably less than either a Special Needs Trust (SNT) or Pooled Income Trust.
Furthermore, with an ABLE account, account owners will have the ability to control their funds and, if circumstances change, still have other options available to them.
For many families, the ABLE account will be a significant and viable option in addition to, rather than instead of, a Trust program.
What is an ABLE Account Summary
We hope this post “What is 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 including Reasons to choose an ABLE Account, How to apply for SSI Benefits, What is SSI Eligibility Criteria?, SSI Benefits Calculator, June SSI payments Schedule, and Social Security Questions, and Answers.