Many people with disabilities and special needs depend on programs like Social Security and Medicaid to provide income and health care. However, these benefits have an asset and income threshold, and people may lose their eligibility to receive the benefits unless they meet the financial requirements. The ABLE act was established to help eligible individuals and families create a savings account to provide for a loved one with a qualifying disability.
ABLE accounts allow people receiving SSI and Medicaid to retain their benefits while building a financial cushion that can help with later-in-life care (such as if a parental guardian passes away) or pay for long-term care housing (if their condition worsens).
ABLE Accounts are a type of financial trust for individuals with special needs or disabilities, allowing them to save money in tax-exempt accounts without jeopardizing their eligibility for state and federal benefits. The money grows tax-free over time and enables the individual to be financially provided for later in life.
Who is Eligible For an ABLE Account?
Eligibility for ABLE accounts depends on two requirements:
- The onset of the beneficiary’s disability must have occurred before their 26th birthday.
- The beneficiary must meet the SSI or Social Security Disability benefits requirement, OR Submit a disability certification from a licensed physician confirming the individual meets the required disability criteria for an ABLE account.
Although people older than 26 may open an ABLE account, only people whose disability occurred before their 26th birthday can open one. Someone may have developed a disability at 20 and now be 31 and still be eligible for this kind of account.
Who is Eligible to Open or Contribute to ABLE Accounts?
The beneficiary’s parent, legal guardian, or power-of-attorney holder can open the accounts, and anyone may contribute to the account. There is a
The maximum lifetime contribution to this account is $500,000, but if the account balance exceeds $100,000, the beneficiary’s SSI eligibility may be impacted until the account balance drops below $100,000. Therefore, an agent acting under a durable power-of-attorney or guardian must monitor the account to ensure the beneficiary enjoys the maximum benefits.
How Can ABLE Accounts Be Used?
ABLE accounts may pay for any qualified disability expenses or expenses related to the account holder’s disability. This can include education and vocational rehabilitation or employment training, housing or modifications to a home, assistive technology, legal fees, health care services, wellness programs, and even burial and funeral expenses. Any remaining funds from this account are distributed to the remainder beneficiary or the account holder’s estate if no identified remainder beneficiary is identified. When the beneficiary dies, the ABLE account funds may be used to repay any outstanding medical expenses or bills (Medicaid sometimes requires this).
Are Contributions or Withdrawals from ABLE Accounts Subject to Taxation?
Contributions to an ABLE account are not federally tax-deductible. Income earned on the funds in the ABLE account is not subject to taxation until the funds are distributed (withdrawn). However, Texas does not have a state income tax, which can benefit ABLE account holders.
Do You Need to Establish an ABLE Account?
Knowing how much to deposit and when to apply can help ensure that the account beneficiary retains their government benefits and enjoys the ABLE Account’s full benefits. A qualified estate planning attorney can help you establish an ABLE account for your loved one or ward.
Limit increased to $16,000 in 2022. The limit typically tracks with the gift tax exclusion amount.