Individuals with a disability, or those who care for a family member with a disability, often rely on public benefits such as SNAP, Medicaid, and Social Security to help cover the high expenses that often accompany a life with a disability. But these public benefits require enrollees to pass a “means test” that shows they have under $2,000 in savings; essentially, they are required to stay poor in order to receive assistance.
In 2014, the government passed the ABLE Act, which, in part, acknowledged the high costs associated with caring for someone with a disability. With the creation of ABLE accounts, individuals with disabilities and their family members can establish a savings account to cover the costs of care, without fear of losing essential public benefits. If you are considering creating an ABLE account, or have one and are unsure of how it works, here are 4 things you should know.
Qualifying for an Account
If you’re thinking about creating an ABLE account, you must first ensure that you meet the requirements regarding the onset of your disability. To qualify for an ABLE account, you must have a significant disability that arose prior to your 26th birthday. You can apply for an ABLE account at any age; you simply must be able to show that your disability had an onset date prior to you turning 26 years old.
If you meet this requirement, and you’re receiving Social Security or Social Security Disability benefits, then you are automatically qualified to create an ABLE account. If you meet the requirement regarding date of onset of your disability, but you don’t receive SSI or SSDI benefits, you’ll need to review the Social Security’s criteria of significant functional limitations for disabilities, then have your doctor provide a letter stating that you meet those criteria.
The holder of an ABLE account must be the disabled individual whose care the funds will be paying for. However, anyone can make contributions to an ABLE account, be it friends, family members, or community members. It is important to know, however, that the maximum annual contribution to an ABLE account is $15,000, regardless of who is making the contributions.
There are also limits to the total amount of funds you can hold in an ABLE account; that limit will be based on the state in which you’ve enrolled for the ABLE program, and is typically the same as their maximum for education-related 529 savings accounts.
If you receive benefits from Social Security, there are a few additional limitations on your ABLE account. Should the total amount of funds in the account exceed $100,000, your SSI cash benefit will be suspended until the total amount drops below $100,000 again. It’s important to note though that your ABLE account’s balance does not impact your eligibility for Medicaid.
ABLE accounts were created with the intent of allowing disabled individuals and family members to save money for expenses relating to the care of a disabled person. For this reason, the funds within the ABLE account can only be used for qualifying expenses. However, the types of expenses that qualify are quite broad, and include:
- Specialized transportation
- Employment training expenses
- Health care
- Assistive technology
- Personal care and support services
- Any other costs associated with improving the person’s health, level of independence, or overall quality of life
If you’re contributing to an ABLE account, please be aware that all ABLE account contributions must be made with post-tax funds. The contributions are not tax deductible for your federal tax return, but some states will allow you to deduct ABLE account contributions on your state return.
If you or your family member is the holder of an ABLE account, you have the option of investing those ABLE account funds at various levels of risk. Speak to a financial advisor to learn more about how to do this. If you choose to invest your ABLE account funds, any income earned on the account will not be taxed. Whether you have an ABLE account, want to create one, or are simply contributing to one, it’s important to know how to handle those funds and contributions. Contact our Provo tax firm to learn more about these accounts and how we can help you.