ABLE accounts for those living with disabilities and the people who care for them

Key points on ABLE accounts

ABLE accounts allow the disabled to have assets up to $100,000 that don’t count against the $2,000 resource limit test used to determine eligibility for state & federal aid programs like SSI (cash assistance from social security), SNAP (food stamps), and Medicaid (health insurance for the poor.)

The ABLE National Resource Center has a lot of great detailed info to help you through the process of application & selecting the best ABLE plan for you. In general, if you pay state income tax, you’ll be best off picking your state’s plan since you can deduct your contributions from your state (but not federal) taxes.

Who is eligible for and can manage ABLE accounts?

People who developed a disability–including blindness– prior to their 26th birthday that is expected to last indefinitely or has already lasted for a year are eligible for ABLE Savings accounts, and they are also the account owners and beneficiaries. However, “authorized agents” for the disabled person can be the person actually opening, funding, and managing the account on behalf of the disabled beneficiary. This is typically a parent or guardian, but many states allow for multiple authorized agents with varying levels of access.

“In general, individuals are eligible for an ABLE account if they are already receiving benefits under Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI). If not, they may still be eligible if they certify that they are blind or disabled and have a written diagnosis of their condition by a licensed physician. Under all circumstances, the onset of the disability must have begun prior to age 26.”

Until very recently, disabled individuals found themselves in a delicate situation when it came to their long-term financial security. The same often applied to families raising children with disabilities. While they might qualify for state and federal aid programs, such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), and Medicaid, they could only receive the full benefits of each if their assets were less than $2,000. Since these programs often fund access to assisted living technologies and services, healthcare, and transportation, disabled individuals were essentially forced to remain poor or lose their benefits.

Luckily, this antiquated approach is slowly changing, thanks in large part to the Achieving a Better Life Experience (ABLE) Act. The ABLE Act amended parts of the federal tax code beginning in 2015, allowing states to establish tax-advantaged savings programs for individuals with disabilities and their families. Importantly, the assets don’t count against the $2,000 resource limit for SSI until they total $100,000.

https://www.fool.com/investing/2018/07/05/what-are-able-savings-accounts-5-things-you-should.aspx

Advantages of ABLE accounts

Money up to $100,000 ($100,000 is the limit in Washington state, but in some states, it’s higher.) can be shielded from the limits imposed by Social Security for determining SSI payments. Investments in the account grow tax-free and are tax-free upon withdrawal if spent on ‘qualified disability expenses’, similar to how a 529 plan works. In fact, you can transfer assets from a 529 plan into an ABLE account, with some restrictions.

In Washington state and generally (double-check with your state just to make sure), there’s no limit on ABLE funds for eligibility for Medicaid, which is awesome.

What can you spend ABLE money on?

You must spend ABLE money on “qualified disability expenses” (QDE) which broadly include any expense related to the disability or blindness of the beneficiary. In practice this includes:

• Living expenses
• educational expenses from preschool through college, and includes tuition, books, and supplies.
• transportation, like bus passes, moving expenses, or the purchase of a vehicle
• job-related training expenses
• Almost any medical expense, including insurance costs, long-term support, nutrition management, communication services & devices, and more.
• Assistive support expenses like a computer for a child with autism.
• Various miscellaneous expenses like legal fees and funeral expenses.
• Housing like rent or a home purchase can be considered qualified, but keep in mind they might impact SSI eligibility, so do your homework there.

Many state plans offer debit cards that can be used to spend directly from the account. Washington state charges a small monthly fee per debit card iisued of $1.25/month (no transactions fees when using the card, however.)

Who can contribute to an ABLE account, and how much?

Anyone can contribute to an ABLE account, but the total for all contributions from all people– including any 529 plan rollovers– combined for a single beneficiary can’t exceed $16,000 in 2022, with some exceptions for those below the federal poverty limit for 1-person households. If you pay state income taxes in the same state that the ABLE account was established in, you can deduct your contributions from your state (but NOT federal!) income taxes. Washington state has no income tax, and California’s plan does NOT allow state income tax deductions, but the funds do accumulate tax-free and if spent on qualified expenses, are distributed state (and federal, like all ABLE plans) tax-free.

Also, note that you can only have one ABLE account per disabled beneficiary. In Washington state, only one Authorized Legal Representative is allowed (other states might allow more than one authorized agent.)

From https://www.finra.org/investors/learn-to-invest/types-investments/saving-for-education/able-accounts-529-savings-plans :

• The disabled ABLE account beneficiary can also contribute their employment income to their ABLE accounts in excess of the annual contribution limit, up to the prior year’s individual federal poverty level. For 2022, that was a max of $12,880 in 2022.
• Designated ABLE account beneficiaries may now be eligible to claim the Saver’s Credit.

What state’s ABLE plan should I choose?

Try this comparison tool to look at 3 state plans together. Include your home state. Some states, including Washington state, only allow residents to open plans there. Oregon & California, for example, each have plans open to all US residents.

What investments should I choose within my ABLE account?

Choose low-fee index funds like those offered by Vanguard if your plan has them (Washington state’s does), preferably in the form of a ‘target date’ option that automatically adjusts– or at least rebalances– between stocks and bonds. I assume here that the beneficiary expects the funds in their ABLE account to last over their lifetime. If instead they planned to use all the ABLE money in just a few years, a more conservative investment option should be used.

For Washington state plan participants, I recommend the ‘ABLE Aggressive’ option which is a mix of 84% stocks and 16% bonds for young-ish beneficiaries, like those under 40 or 50. For those 40 – 50 or older, the 50-50 ‘ABLE Moderate’ portfolio is a good one.

For those 70 or older with very limited risk tolerance, the ‘ABLE Conservative’ 80% bonds – 20% stock plan can be used, or for those that expect to exhaust all the ABLE funds in a few years and aren’t planning on using it for life.

For California ABLE plans, the … are good.

Note that you can only make changes to your ABLE investment choices twice a year, the same as for 529 plans.

Can an ABLE account or 529 plan be rolled over to another ABLE account?

Yes, you can roll one ABLE plan over to another as long as the authorized person stays the same, and the beneficiary either stays the same OR is in the eligible family members list. These are the exact rules for Washington state ABLE rollovers. Other states might vary:

• “An eligible Beneficiary can only have one ABLE account open at any
  time, except for the 60-day grace period for closing an ABLE account
  following a rollover to a new ABLE account.
• If there is an Authorized Legal Representative (ALR) on the old ABLE
  account, they must be the same on the new account. If you would
  like to change the ALR, please do so on the old ABLE account before
  completing this form.
• The Beneficiary of the new Washington State ABLE account must
  remain the same as the beneficiary of the old ABLE account or be an
  eligible “Member of the Family” (brother, sister, stepbrother, stepsister)
  of the beneficiary of the old ABLE account.
• A rollover from one ABLE account to another qualified ABLE account
  for the same beneficiary can only occur once every 12 months.”

Also, 529 plans started for education purposes of even a different beneficiary– say, you, or a child without a disability– can generally be rolled into an ABLE account per the ‘family member’ rules (unless the 529 plan was funded with a UTMA/UGMA gift to a minor, in which case the beneficiary can’t change.) This is subject to the ABLE plan contribution limits however, so if you have a large balance in your 529 plan, you may have to do the rollover in pieces ($16,000 at a time for the 2022 ABLE contribution limit.)

What happens to any unused ABLE funds when the beneficiary dies?

“Unused funds pay Medicaid. If the account owner dies with funds in an ABLE account, those funds must be used (in this order), to pay any outstanding qualified disability bills including funeral expenses, to provide payback to Medicaid for all Medicaid benefits received, and then to be distributed to the account holders legal beneficiaries.”

This means in practice that if the ABLE beneficiary received a fair amount of Medicaid services, there might not be much if anything left for beneficiaries, so keep that in mind for estate planning purposes.

Other kinds of accounts for disabled people

A Special Needs Trust is often used as well, but that generally requires legal fees to set up, whereas an ABLE account can be funded for as little as $25 with minimal annual fees ($35/year in Washington state.)