ABLE: The Savings Account for Students with Disabilities

Able: The Savings Account For Students With Disabilities

Families with children who have disabilities can save for their children’s future, including attendance at a higher education institution, in an Achieving a Better Life Experience, or ABLE, account.

The Weinsteins are one of those families.

“My 16-year old son, Eli, has severe autism and will likely live out his adult years in a group home. The state pays for his housing and three meals a day, but I want more for my son than survival,” says Rabbi Simcha Weinstein, the founder of autism advocacy group Jewish Autism Network.

“From his ABLE account, I’ll pay for his long-term out-of-network medical charges, technology, the education and experiences he can do, travel when he comes home to visit and eventual end-of-life expenses.”

Here’s what you need to know about these accounts, and how to know whether an ABLE account is right for your family.

What Is an ABLE Account?

An ABLE account is a tax-advantaged account for saving for qualified adult disability expenses. They are similar to 529 college savings accounts or 401(k)s in that they have limited investment choices. Because each ABLE plan is tied to a state, the state is able to negotiate smaller management fees based on the large number of accounts that are managed.

ABLE accounts are a valuable asset for families with a child who has a disability qualifying them for Supplemental Security Income (SSI), childhood disability benefits (CDB), disabled widow’s or widower’s benefits (DWB) or disability insurance benefits (DIB) “based on disability or blindness that began before age 26,” according to the IRS.

The child also may qualify if they or their parent or guardian certify that they meet the criteria to open an account before age 26.

How Do You Set Up an ABLE Account?

Go to the ABLE National Resource Center state plan search tool to learn about and select among the programs your state offers. When you click on your state’s plan, you’ll learn basic information such as lifetime limits, state tax-deduction information and some of the rules for how an ABLE account interacts with Medicaid in your state.

If your state doesn’t have a plan, or even if it does, you can choose a plan from another state, says Mary Anne Busse, managing director of Great Disclosure LLC, a Royal Oak, Michigan-based consulting firm that offers guidance on college savings plan implementation. If you choose another state’s ABLE plan when your state does have a plan, you may miss out on tax benefits such as a state tax deduction for contributions.

Anyone can contribute to an ABLE account, similar to a 529 plan. This makes family members and relatives gifting money for the beneficiary, the person designated to use the money, a possibility. However, unlike 529 plans, grandparents and parents can’t have their own accounts for the same person. This is because, unlike 529 plans, the person that will use the account is also considered the account owner.

Can You Use an ABLE Account and a 529 Plan for the Same Child?

Some children may attend a higher institution and still qualify for an ABLE account. For instance, a blind student may qualify for ABLE to save for expenses related to their disability. They may also use a separate traditional 529 plan for qualifying higher education expenses, says Busse.

What are Qualified Disability Expenses?

According to the Social Security Administration, ABLE account funds can be used to pay for the following qualified expenses:

  • Education
  • Living expenses
  • Transportation
  • Job training and support
  • Assistive technology and related personal support services
  • Health care, prevention and wellness needs
  • Financial management
  • Legal fees
  • ABLE account management and supervision
  • Funeral and burial costs

What Are the Federal and State Tax Rules for ABLE Accounts?

“Each state treats ABLE plans differently for state tax purposes,” says Busse. “Some states offer an income tax deduction or credit. In some cases, those deductions or credits may be subject to recapture by the state for certain types of non-qualified withdrawals. It is, therefore, very important to check the ABLE-related tax laws of the state in which you pay taxes before you open an ABLE account.”

ABLE plans are very similar to 529 college savings plans in that taxes aren’t charged on earnings, as long as distributions are withdrawn for qualified disability expenses. There may be a tax penalty if the money is taken out for a non-qualified withdrawal. Also, there could be a tax penalty if you contribute more than the $15,000 annual limit.

However, an ABLE account owner may be eligible for the saver’s credit, a credit from the IRS in which a percentage of the contribution may get returned to you as a tax credit.

It’s also important to understand how your state and the federal government evaluate ABLE account resources when determining eligibility for other benefit programs.

“I believe the most common misunderstanding that potential beneficiaries have is that assets in the ABLE account will count as resources for SSI purposes,” says Busse. “The idea of savings is very new to most eligible individuals, since they are generally not allowed to have more than $2,000 in resources to be eligible to receive benefits.” Up to $100,000 in ABLE savings will not hurt SSI benefit eligibility, she says.

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