In 2014, Congress passed an act called the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act) that created a system of special accounts specifically designed for people with disabilities. This Act was designed to allow people with disabilities to save money for expenses related to their disability while still preserving their access to social service programs, including Medicaid, SSI, SSDI, and similar programs.
Typically, most social service programs have a “resource test,” and individuals may be ineligible if they or their parents have too much money saved. However, the ABLE Act recognizes that people with disabilities have extraordinary expenses and should not be penalized for saving money to pay for these expenses. If money is placed into an ABLE Account, it is exempted from resource tests for most social service programs. Individuals can even continue receiving SSI/SSDI payments unless the amount in the account exceeds $100,000.
Where does the program stand currently?
ABLE accounts, like 529 college accounts, are administered separately in each state. In other words, each state needs to create its own program, which typically requires passing laws. This process takes time, and many states are still in the process of developing their programs, and in some cases passing laws. A few states, such as Idaho, have not begun the process at all, and others, such as Mississippi, have not successfully passed legislation.
As of the start of 2017, 9 states have programs in place allowing individuals or families to open an ABLE account. These states are Alaska, Florida, Kentucky, Michigan, Nebraska, Ohio, Oregon, Tennessee, and Virginia. Another dozen or so states will have their programs open for enrollment within the next six months. Most states’ programs are (or will be) open to qualifying individuals with a disability, regardless of whether they live in that state or not, though families may receive state tax benefits if they use the program in their state, and fees may be reduced.
For information on your state, please see the ABLE National Resource Center State Review page.
How do these programs work?
ABLE accounts work much like 529 college savings accounts. Each state has its own program, but individuals may enroll in any open program, regardless of their state of residence.
Like 529 plans, anyone can contribute to your child’s ABLE account. Your child, you as parents/guardians, any member of your extended family, and even family and friends can contribute to the account. Unlike 529 plans, your child can only have one ABLE account at a time.
Since each state has a separate program, it is difficult to generalize about the amount of money that can be contributed per year, fees associated with the account, or how the money in the account is invested. The federal government does currently limit the annual contribution to $14,000 per account, and most states plan to use this amount as the yearly maximum. States have the option of limiting the maximum amount of money in the account, and thus far these limits have ranged from $300,000 to $500,000. Most states offer multiple investment plans with varying degrees of risk or fees. Some states will also offer a debit card to use for expenses.
Earnings on the accounts are federally tax-free, and some states may offer tax savings for money contributed to an account.
Who is eligible for an ABLE account?
Eligibility is wide-ranging and should allow for almost all individuals with a lifelong disability to have an ABLE account. The following eligibility requirements are universal in all programs:
- The disability must have begun and been diagnosed prior to age 26, though the individual may retain the ABLE account throughout his/her entire life.
- If the individual receives SSI/SSDI, he/she is automatically eligible.
- If the individual does not receive SSI/SSDI for financial reasons, he/she must have a disability that meets SSI criteria, including lasting for more than 12 months, as verified by a physician’s letter.
Automatic eligibility may also be possible in some states for children who:
- Have a condition lasting more than 12 months that is listed on the SSI Compassionate Allowance List of Conditions
- Participate in a state-based program that uses SSI disability criteria (such as TEFRA/Katie Beckett waivers) for eligibility
- Participate in other state programs as determined by the state
What can the money in the account be used for?
The money in the account can be used for any expense related to the individual’s disability. This includes the following:
- Housing, including rent, mortgage, and utilities
- Employment training and support
- Assistive technology and related services
- Health, including respite care and personal care services
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Expenses for ABLE account oversight and monitoring
- Funeral and burial
- Basic living expenses
While most states do not require documentation for all expenses, the IRS may ask for documentation of each expense.
What happens to the money if my child dies?
In most states, the Medicaid agency may recoup its costs from any leftover funds in the account. Leftover funds may be rolled over to another family member with a qualifying disability.
Should I open an account now or wait?
If opening an account now will allow your child to suddenly qualify for SSI or Medicaid, it is definitely wise to open an account, even if one is not available in your state yet. While you may initially miss out on some state-based tax breaks or reduced fees, you can always transfer the account to the program in your state when it becomes available.
If the money you currently have would not affect your child’s benefits and your state is well along in the process of establishing an ABLE Accounts program, it is probably wise to wait until your state program is available. This is particularly true if your state program offers tax breaks or reduced fees to in-state participants in the program. If your state has not started the process or legislation has failed, it may be wise to look at plans in other states.
This webinar can help you to determine which program to enroll in.
Where can I get more information?
The ABLE National Resource Center is a fabulous organization and website that maintains the most current and detailed information on this topic. It has information on the status of ABLE Account programs in each state, as well as general information on eligibility, choosing a program, and qualifying expenses.