ABLE Accounts: Savings Accounts for Families with Special Needs Children

For many years, parents of special needs children were limited to using Special Needs Trusts and Pooled Income Trusts to provide long-term financial support, both of which could be quite costly. However, in 2014 the Achieving a Better Life Experience Act, better known as the ABLE Act, was passed. This Act allowed individuals with disabilities and their families to open tax-advantaged savings accounts called ABLE Accounts. Like a 529 account, the ABLE account allows parents, family members, and friends to save for the financial support of the individual in a tax-advantaged way.

The primary advantage of using an ABLE Account is that the savings largely do not affect an individual’s eligibility for SSI, Medicaid and SNAP. Eligibility for these public benefits require meeting a means or resource test that limits eligibility to individuals with less than $2,000 in cash savings, retirement funds, and other items of significant value. The ABLE Act recognized the extra and substantial costs for families raising a child or working age adult with significant disabilities. ABLE accounts were designed to help alleviate some of these costs.

Like most tax-advantaged accounts, there are limits to how much you can contribute. ABLE accounts are limited to annual contributions from all parties of $15,000. The total lifetime contribution limit for ABLE accounts varies and is subject to individual state regulations. Many states set this limit equal to their 529 lifetime limits and several states set this limit close to $300,000. However, for individuals with disabilities who are recipients of SSI, only the first $100,000 in the account would be exempted from the SSI $2,000 individual resource limit. If an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit is suspended until the account falls back below $100,000. It is important to note that while the beneficiary’s eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid. The new Tax Cuts & Jobs Act of 2017 also allows transfers from unused 529 accounts to an ABLE Account tax and penalty free, but this provision only lasts until 2025.

Like 529 plans, you can invest your savings using a select number of investment options offered by each state. Each state is different, so it is important to consider your desired rates of return, fund costs, and risk tolerance when selecting the best plan for your needs. As with a 529 account, the investments grow tax free and can be distributed tax free as long as the funds are used to pay for “qualified disability expenses”.

A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. These may include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses which help improve health, independence, and/or quality of life.

Overall, an ABLE account provides more choice and control for the beneficiary and his/her family. With an ABLE account, account owners have the ability to control their funds and, if circumstances change, still have other options available to them.  Additionally, the cost of establishing an account is typically considerably less than establishing either a Special Needs Trust or Pooled Income Trust. Determining which option is the most appropriate will depend upon individual circumstances, but for many families the ABLE account will be a viable option in addition to, rather than instead of, a Trust program.

Jeff Witz, CFP® and David Zemon welcome readers’ questions.  They can be reached at 800-883-8555 or at witz@mediqus.com or zemon@mediqus.com.

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