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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.)

In Part 1 we discussed the ‘soft skills’ behind financial success to teach your kids. In Part 2 we went over some tactical tips including building their credit score and saving for education.

Opening a bank account for your minor child

In the US, a person must be an adult (18+) to have a bank account in only their name. However, minor children can often have their parent or guardian open a joint account with them. (Check with your state, as this apparently depends on state regulations as well as what individual banks or credit unions offer.) Opening a bank account with your child’s name on it is a great way to introduce your child to the concept of saving, interest, and later, investing. Plus, I think it helps make them feel like a responsible adult to be able to, say, walk into a bank and deposit a check from Grandma, write a check to pay for something. When they’re high school-aged teens they can move on to direct depositing their part-time job earnings and using a debit or ATM card responsibly.

So, what bank account to choose? Many banks offer accounts tailored for children and their parents. The first major decision you should make is whether you want them to open a bank that has physical branches or an online-only bank like the ones I recommend.

Physical banks for young kids

Maybe I’m old-fashioned, but even though I try never to set foot in a physical bank if I can help it, I think there’s value in teaching your children to use the expensive relic that is traditional banking. If nothing else, being comfortable in adult institutions is both fun and an important part of growing up. So, if your child is pre-high school, I recommend opening an account at a good physical bank with a local branch near you.

If you use a physical bank (still? :)), then check there first if you like them since it’ll be most convenient for you for your kid to bank where you do. Washington residents should try BECU for kids. (I hate their web technology, but they–like most credit unions– have good incentives and low fees and friendly service.) Credit unions in general are a fine choice if you need an in-person bank for no-fee, moral banking for kids and adults alike.

Nationally, Chase seems to be a more honorable Big Bank than the incompetent Bank of America and the outright-fraudulent Wells Fargo. You can open a Chase kid’s savings account when they’re 6 – 17, or a teen co-owned account when they’re 13 – 17.

Online banks for working/spending teenagers

Once your child is old enough to have more responsibility over their own spending, and especially once they’re earning their own money, you should move them along to the best kind of bank they can have, which means an all-online one with low fees, high automation, and a good interest rate on savings.

I have so many clients still using awful banks like Bank of America or Wells Fargo for the simple reason that– in their words– “it was the first bank I ever had”. Don’t let this be your child.

Ally Bank is probably my top online choice for adults, but as of writing they do not allow minors to be joint account holders.

Capital One— which I use and recommend– offers a Kid’s Savings Account as well as a Teen Checking Account that comes with a debit card. Go with them when your child is ready for direct deposit + a debit/ATM card!

What to tell your kids about banking?

Explaining how checks, deposits, and interest work are all good things to do. Additionally, talk about avoiding overdrafts (make sure your child’s account either has overdraft protection off so with auto-declines in place, or take advantage of setting up free savings transfers that many banks and credit unions offer at no cost.)

Teach them to save up for a big goal like a large purchase using allowance or other gifted funds when they’re young. When they have incomes of their own, teach them to always put aside some portion of it for their futures. When they have earned income from wages, help them open up a Roth IRA.

If you have student loans, you can now file for debt relief in just a few minutes with your personal information at https://studentaid.gov/debt-relief/application

The main requirement is that you have loans that qualify* (most people do) and have income under $125 K as a Single filer or $250 K as a Married Jointly filer. File today if you have student loans and cross your fingers!

*From https://www.forbes.com/sites/adamminsky/2022/10/06/how-to-tell-if-your-student-loans-qualify-for-forgiveness-under-bidens-plan/?sh=60c6f1db45cc :

But when it comes to which student loans qualify for relief, it gets a little tricky. All government-held federal student loans, including undergraduate, graduate, and Parent PLUS loans, are potentially eligible for relief. This would include Direct federal student loans, as well as FFELP loans that are in default or already administered by the Education Department. Private student loans and — following an abrupt policy change last week — most commercially-held FFELP loans do not currently qualify.

Last October I listed 12 of my favorite Halloween/horror audio shows, but here’s 5 more that I’ve discovered since. You can find all of my Halloween media recommendations– plus more horror fun– here.

1. Two patients in a mental asylum become part of a deranged experiment in this Dimension X radio play from the 1950s.
2. In the Peoria Plague, a radio broadcast describes a zombie-like outbreak in a factual War of the Worlds-style radio play (here’s a 1968 remake of Welles’ classic as a bonus) from an Arizona station in the 1970s.
3. Adventure into the Himalayas to hunt the abominable snowman in this 1953 radio episode of Escape.
4. Those with access at their libraries to the Overdrive/Libby collection can find this excellent BBC production of British horror author M.R. James’ very creepy stories. Also on Amazon’s Audible and other audio book providers.
5. Here’s a BBC radio dramatization of a classic ghost story from Bram Stoker, author of Dracula, about a student who rents a haunted home. It’s called The Judge’s House.