Achieving a Better Life Experience (ABLE: 101)
According to the Centers for Disease Control (CDC), nearly 1 in 4 U.S. adults live with a disability. For those who live with a disability, chances are it is rare that anything has been easy or straightforward when qualifying for any government assistance. Social Security Disability Income (SSDI) or Supplemental Security Income (SSI) alone may leave you wondering if the benefits are worth the hassle.
In 2014 the Achieving a Better Life Experience (ABLE) Act was passed, allowing States to craft their own tax-advantaged savings program for people with disabilities. If the dollars from these accounts are used to pay for “qualified disability expenses” for the designated beneficiary, then they grow and are distributed free of any taxes. Sound familiar? Yes – these accounts are very similar to 529 accounts (if you missed it, see our previous blog post about 529 accounts). In fact, the legal name given to ABLE accounts by the IRS is “529A Able Accounts.” There are, however, some key differences to an ABLE account.
There are many financial benefits to the ABLE accounts, including tax-free growth when the money is used for a qualified expense as well as a State income tax deduction (deduction varies by State). Below are some frequently asked questions regarding ABLE accounts and the benefits that come with them.
- Who is eligible for an ABLE account?
- What are the limits to ABLE accounts? (Contributions, account values, deductions, etc.)
- What qualifies as a disability expense from an ABLE account?
- If I have an ABLE account, will I become ineligible for SSI payments?
- How does an ABLE account impact my Financial Aid?
1. Who is eligible for an ABLE account?
Any person who has disabilities that qualify for SSI, SSDI or has blindness that developed before age 26 is eligible for an account. (The disability itself had to occur before 26, but the account can be opened after age 26). Want to know if you or a loved one qualify? Take the ABLE quiz!
2. What are the limits to ABLE accounts? (Contributions, account values, deductions, etc.)
The maximum contribution limit follows the annual federal exclusion amount of $15,000 for 2019. This includes all forms on contributions, meaning whether it’s SSI/SSDI income, a contributor depositing money, or the beneficiary depositing his checks into the account, the maximum is $15,000.
There is also an account value limit varying by State. For example, Maryland is $50,000 and Virginia is $100,000.
Depending on your State of residence, there is a State income deduction limit. i.e. Virginia offers a $2,000 deduction per contributor and Maryland offers a $2,500 deduction per contributor.
Here is a Map provided by the National Resource Center for ABLE that shows how each State handles their ABLE Program.
3. What qualifies as a disability expense from an ABLE account?
A “Qualified disability expense” refers to expenses incurred by the designated beneficiary as a consequence of living with a disability. Education, rent or mortgage, transportation, job training, health care expenses, financial management services, the list goes on. Essentially any expense that will help improve health, independence, and quality of life is allowable. There is a wide range of expenses that can be paid for with pre-tax dollars, and any excess will grow tax-free.
4. If I have an ABLE account, will I become ineligible for Supplemental Security Income (SSI) benefits?
SSI is a needs-based program provided through the government. To receive it, they look at your countable resources and determine they are under $2,000 ($3,000 for a couple). What are “countable resources?” These are things you own: bank accounts, cash, land, life insurance, personal property, vehicles, anything that could be converted to cash or used for food/shelter. So, if you are receiving SSI benefits, don’t panic! The first $100,000 in an ABLE account is exempt from the SSI resource limit.
5. How does an ABLE account impact my Financial Aid?
Similar to SSI benefits, most States and the federal government look at ABLE as a way to supplement the means-tested assistance programs, rather than replace them. Therefore, when it comes to FAFSAs, ABLE accounts, up to the $100,000 limit and any interest or distributions are excluded from the asset sheet. This is a major difference between 529 accounts and ABLE accounts. The ABLE account $100,000 limit is protected from many public benefit programs, whereas 529 accounts are not.
Before 2014 and the ABLE act, many Americans living with a disability could not seem to catch a break. A majority of the government assistance programs out there involved jumping over numerous hurdles, piles of paperwork and an eternity on hold.
The ABLE act is a breath of fresh air. It recognizes that not every scenario has a cookie-cutter solution. People are from all different walks of life, many different backgrounds, and not everyone’s story will be the same. The ABLE act allows for those with disabilities to have more flexibility in how they live and how they are going to live in the future. It is a great reminder that everybody deserves to have a goal and a plan of how to achieve it. Turning over all the stones, analyzing the options and educating people is the essential description of financial planning. There are multiple ways to reach your goal but understanding all the little nuances of the programs out there and how one choice affects another is part of making the best decision for you and your family.
For more information on ABLE accounts or disability planning, please reach out to Burney Wealth Management.
Advisory services are offered through the Burney Company, an investment adviser registered with the U.S. Securities & Exchange Commission. Registration as an investment Adviser does not imply a certain level of skill or training.