We all want to achieve a better life experience, but did you know that this actually is an Act that was signed into law? In December of 2014, a new asset -building opportunity for certain individuals with disabilities was signed into law, called Achieving a Better Life Experience (ABLE) Act. It was designed to establish a tax-free savings account to pay for disability-related expenses to help maintain or improve health, independence, and quality of life.
What is the purpose of the ABLE Act?
Many individuals with disabilities and their families depend on public benefits for income, health care, food, and housing assistance. Programs such as Supplemental Security Income (SSI), Medicaid, and Supplemental Nutrition Assistance Program (SNAP) are means-tested with resource limits, and individuals who depend on these programs are often unable to save for expenses related to their disability. The ABLE Act addresses the significant costs that those with disabilities have in living or working in the community, including accessible housing, transportation, personal assistance services, assistive technology, or healthcare needs not covered by Medicaid, Medicare, or private insurance. The Act allows those who qualify to establish a tax-free advantaged savings account that will not affect their eligibility for SSI, Medicaid, or other public benefits.
How does an ABLE account work?
The tax-free ABLE account lets people with disabilities save for their future without affecting their benefits. It also lets family and friends give them money.
If you have a qualifying disability that began before you turned 26, you may be able to save up to $27,490 each year in an ABLE account without affecting Medicaid, SSI, and most other benefits, as long as you meet all the other benefits rules.
Of that $27,490 per year, up to $15,000 can come from any source, including your family, friends, benefits, or other unearned income. If you have a job, you can save up to another $12,490, which can only come from your own earned income.
The growth of the investments in an ABLE account is not taxed, so your wealth will grow faster. However, when you take money out of the account, you must spend it on qualified disability related expenses, or it will be taxed as income.
Three important elements of ABLE accounts:
- Limits on contributions on this account
- Total annual contributions that can be received from any source – you, your family and friends, your benefits, and other unearned income is $15,000. Taking money out of the account does not mean you can put more in. The deposit limits are on how much total money is put into the account each year. Taking some out does not change that.
- If you have a job, you can deposit another $12,490 of your own earned income. Combined, this means that if you work, you could save as much as $27,490 annually.
- The maximum varies by state. For example, in Washington State the maximum amount that can be in an ABLE account is $500,000. Social Security only excludes the first $100,000 from resource limits. If you have more than $100,000 in the account, your SSI benefits will “suspend” but your Medicaid coverage will continue.
If your ABLE account reaches the maximum amount, you cannot make any more deposits until the account balance drops back down.
- Rules for Spending ABLE Money – You can spend the money on any qualified disability expenses
Housing (mortgage payments, real property taxes, rent, furniture, heating fuel, gas electricity, water, sewer, or garbage removal) If you take money out of your ABLE account for housing related expenses, you must spend that money in the same month you took it out of the account.
- Transportation (including gasoline, and car repairs, public transportation, para transit, and taxis)
- Medical expenses, prevention, and wellness (including insurance premiums and co-pays)
- Employment training and support
- Assistive technology and personal assistance services
- Financial management and administrative services
- Legal fees
- Basic living expenses
If you take money out of your ABLE account but do not use it for qualified disability expenses, you might have to pay federal income tax on that amount, plus a 10% penalty, and it could affect SSI income and any other benefits. It is especially important to keep excellent records of receipts for all ABLE account withdrawals and what it was used for.
- Any growth in an ABLE account is tax-free and if saving money from earned income, you may qualify for the Federal “Saver’s Credit” when filing income taxes.
Are there fees and specific requirements?
Each participating state has their own program requirements, so be sure to check out if your state participates and their requirements. For example, the Washington ABLE program requires:
- An initial minimum of $25 to open the account
- A minimum of $10
- An annual set fee of $35 to maintain the account
- Check fee – $2.50 per paper check disbursement.
- Debit card fee – $1.25 per month
- Statement fee – Free for e-delivery. $10 annually for paper statements
- ABLE account transfer fee – $50 for outgoing transfers, but free unlimited withdrawals
Does your state participate in an ABLE program?
No matter where you reside, you can open an ABLE account in any state that accepts outside residents into their program. Want to compare state programs click here https://www.ablenrc.org/compare-states/ See an ABLE program features tool go to https://www.ablenrc.org/state-plan-search/
Stay tuned for next months blog on another asset building program that is available for people with disabilities in achieving financial well-being and asset development.
Till next time,