How to Select a State ABLE Program (Part 2) – Top 5 Deciding Features
Updated April 2024: The North Carolina ABLE plan (which is the same for all other 18 state programs that make up the National ABLE Alliance changed some of the mutual funds that they use for investing ABLE funds. Also accounted for New York now accepting out of state residents which makes them available to everyone.
In this 2nd article, on how to select a state ABLE program, I will discuss the top 5 features to consider when selecting an ABLE account.
In the 1st article in the series, I explained that we can narrow the 53 available ABLE programs down to just 10 unique programs, making the evaluation much more manageable. This article focuses on what features are the most important when considering choosing an ABLE program.
#1 Deciding Feature of an ABLE Program – Investment Return
We will start with the most important feature of any ABLE program. Isn’t investment return the most important measure for any investing product?
Maybe you are using an ABLE account only to save money and not invest it, then investing performance may not matter to you. For the rest of us who need to save and invest for many rainy days that are ahead, we want and need these funds to grow.
As is well known stated, past performance does not guarantee future returns in investing. Past performance, however, can measure how an investment fund has done compared with the overall market and versus other investment products. It is also a way to distinguish the performance between state ABLE programs. Better performance over time translates to more available funds for disability expenses.
Every state ABLE program publishes its investing details in a “Plan Disclosure Statement” or “Plan Disclosure Booklet” or their “Plan Disclosure Document”. The ABLE program usually offers 4 to 8 levels of investment, which range from conservative to aggressive. For our evaluation, we will focus on the most “Aggressive” option offered by each of the 10 programs.
3 Examples of the “Aggressive” or “Growth” Investment Options
Here is a listing of the underlying mutual funds that are in 3 of the final 10 state ABLE programs from the final ABLE program list.
| Massachusetts | North Carolina | Nebraska | |||||
| FAMRX | 100% | VIIIX | 28% | VSMPX | 56% | ||
| VEMPX | 23% | VTIAX | 24% | ||||
| VTMNX | 22% | VBMPX | 20% | ||||
| VEMIX | 9% | ||||||
| SCHH | 8% | ||||||
| VBMPX | 4% | ||||||
| VTSPX | 2% | ||||||
| HIGFX | 3% | ||||||
| IAGG | 1% |
You can see that the Massachusetts plan uses one mutual fund called the “Fidelity Asset Manager 85%” as their most aggressive option. In their program description document, they refer to the fund as the “ABLE Aggressive Growth 85% Portfolio”.
The North Carolina ABLE Program, which is the same program used by 19 other states that make up the National ABLE Alliance, uses 9 different mutual funds for their aggressive option.
The Nebraska ABLE program uses 3 investment mutual funds for what they call their “Growth Option”.
The performance of every one of these funds from the last number of years is readily available and can be compared with each other.
In this chart, you can see the results of investing $10,000 from the beginning of 2016 through to the end of 2020. We can compare how each of the 10 ABLE program’s most aggressive investing options compare with each other. The 2nd column is the reported compound annual growth rate (CAGR) and the 3rd column is the total value of the account at the end of 2020.
While the S&P 500 doubled in value over that time frame (from Jan 2016 to Dec 2020) the returns from each of the final 10 ABLE programs were slightly lower.
The Massachusetts plan, which is managed by Fidelity, is first on the list followed by North Carolina (or any state in the NAA), then Nebraska, then the remaining 5. You could conclude that they are all very close in their results and you can also observe that there is a difference between the program at the top of the list versus the program at the bottom of the list.
This performance comparison does not take into account all of the ABLE program fees and expenses as they are more difficult to account for, but it does include the expense ratio of each underlying mutual fund.
Included with this table is the performance of the S&P500 index over the same time frame and a common conservative investment portfolio consisting of 60% stocks and 40% bonds.
Based on these performance comparisons would you pick one ABLE account over another?
We had selected the North Carolina ABLE program before we had done this performance comparison. We will run these tests periodically to see if a new leader emerges.
Note: if you are a resident from Tennessee consider the Tennessee ABLE program before these others. The Tennessee ABLE program offers individual mutual funds, like the Vanguard Total Stock Market Index Fund (VITSX), which are 100% stocks. Although the fund outperforms others (CAGR: 15.43%, Final Balance $20,494) the investment risk is higher as well.
#2 Deciding Feature of an ABLE Program – State Tax Deduction/Credit
The performance results of the top ABLE programs are so close that it may not be a deciding factor for you. This next feature may be very minor to you as well if your state does not have a state tax or does not offer this feature in your state-specific ABLE program.
One of the features of some ABLE programs is the ability to take a state tax deduction or receive a state tax credit when filing state taxes, for contributing to an ABLE account. This usually only applies to the state in which you live and if you have to file taxes in your state. There are no state taxes in Texas so this feature does not apply to us as we are Texas residents.
You will want to see what your state offers for a deduction from state income or tax credit before you decide to go with an alternate out-of-state ABLE program. The tax credit may not amount to much but if you plan to contribute to an ABLE account year after year and a deduction on your state tax return can have some impact then the total money saved may be important to you.
If we just look at the 10 final ABLE state programs, only Nebraska, Ohio, Oregon, and Virginia offer a state income tax deduction or state tax credit and it varies widely.
Nebraska offers a deduction of up to $10,000 per state tax return
Ohio offers a deduction of up to $4,000 per state tax return with carry-forward
Oregon offers a credit of up to $300 for joint filers, and $150 for single filers. The amount of the credit depends on your AGI and how much was contributed to an ABLE account
Virginia offers a deduction of up to $2,000 per state tax return with carry-forward
From the final 10, California, Massachusetts, North Carolina, and Texas (replace with your state) do not offer state tax deductions or credits to their residents. A number of other state ABLE programs also do not offer savings with state tax when contributing to an ABLE account.
Other states that do offer some kind of state tax deduction or credit include Alabama, Arizona, Arkansas, Illinois, Iowa, Kansas, Maryland, Michigan, Mississippi, Missouri, Montana, Pennsylvania, South Carolina, Utah, West Virginia, and Wisconsin. If you live in one of these states you may want to see what kind of tax savings is available as you and others make contributions to your loved one’s ABLE account. Note: although Wisconsin does not have a current ABLE program, its residents may qualify for an income deduction when contributing to an ABLE account.
As an example, using the ADP paycheck calculator, the total amount saved on state income tax in Nebraska, if the full $10,000 deduction was used (meaning you contributed $10,000 to an ABLE account), with a $100,000 yearly salary, 3 allowances, could be around $695.
For Ohio, contributing $4,000 on the same $100,000 salary, the tax savings would be just $160.
Are those tax savings worth using a specific state ABLE program for your state? Maybe for Nebraska, it would be worthwhile but maybe not so much for Ohio.
If your state is not part of the final 10 ABLE program list, you can look up the details of what they do offer in their ABLE program disclosure document then calculate what the yearly tax savings would be for you, given your yearly salary, filing status and exemptions, then calculate if there are any potential state tax savings. It may be worth keeping your own state ABLE program on your shortlist of 10 given that the tax savings are significant.
#3 Deciding Feature of an ABLE Program – Contribution Holding Time
I’m not sure that anyone would think of this one, just like I did not consider it until I was looking into the details of various state ABLE programs and came across this little unknown feature. We have not yet been impacted by this feature because the North Carolina ABLE program, NC ABLE, which we had selected, has normal contribution holding times. A number of other state ABLE programs, however, describe much longer holding times, up to as long as 20 business days.
What is meant by “the contribution hold time?” Any time a check is sent to an ABLE program, by a third party, like parents, grandparents, family, friends, or anyone else besides the account owner, or typically the account representative, then the ABLE program “holds the funds” until they credit the ABLE account with the deposited funds. Today’s standard hold times, for a modern bank, to wait until a check clears, is, at most, a couple of days. A number of these ABLE programs are choosing to hold them for almost a month.
This means that if someone contributed to an ABLE account on behalf of their loved one, the account owner, or the person with the disability, they would have to wait a month until they could use those funds. What? Does this actually happen to some ABLE account holders? Contributions that are made by family and friends to their accounts are held for a month before they can use them. How is this possible with today’s technology?
This amount of hold time on funds would not be tolerated in any other kind of financial account so I’m not sure why these ABLE programs think that it would be good practice to impose this kind of wait time on accounts that service individuals with disabilities. Thankfully there are other ABLE programs that do not have these kinds of restrictions and are capable of clearing funds much faster than 20 business days.
What if the ABLE account holder had received a large amount of contributions, like an inheritance, which is common, and needed to use those deposited funds as soon as they were received? If they had been enrolled in one of these “long hold time” ABLE programs they would need to wait almost a month before the funds could be accessed to be used for their own needs. What is the ABLE program doing with those funds during that month time frame?
Here are the contribution holding times for the final 10 ABLE state programs that we selected.
| Hold Time | |
| California | 10 business days |
| Colorado | 6 business days |
| Massachusetts | available immediately |
| Nebraska | 5 business days |
| New York | 6 business days |
| North Carolina (NAA) | 5 business days |
| Ohio | 20 business days |
| Oregon | 20 business days |
| Texas | 7 business days |
| Virginia | 1 business day |
The Ohio ABLE “Plan Disclosure Statement”, explains the “20 business day holding period” and “restrictions on the availability of funds for withdrawal” on page 29. Page 64 of the same document explains that the Ohio STABLE program is also used by these partner states, so each of these state ABLE programs would also have the same restrictions of holding the account holder’s funds for twenty (20) business days until they can be used:
- Commonwealth of Kentucky (STABLE Kentucky)
- State of Vermont (Vermont ABLE)
- State of Missouri (MO ABLE)
- State of Georgia (Georgia STABLE)
- State of South Carolina (Palmetto ABLE Savings Program)
- State of New Hampshire (NH STABLE)
- State of New Mexico (ABLE New Mexico)
- State of West Virginia (WVABLE)
- State of Wyoming (WYABLE)
- State of Arizona (AZ ABLE)
- State of Oklahoma (Oklahoma STABLE)
- State of Utah (ABLE Utah Savings Plan)
Do you consider 20 business days a long hold time a key feature of an ABLE account?
How about 10 business days?
Is this also too long to wait to access your funds while other ABLE programs can provide access in a much shorter time frame?
Would it be important for you to have access to deposited funds as soon as possible, no matter who contributed those funds?
Do you mind that the ABLE program is doing something else with your funds while you are waiting to use them for the critical needs of someone who is disabled?
You can see the contribution hold time for your state on the ABLE NRC website and then confirm those details by looking at your specific home state’s disclosure or program document.
#4 Deciding Feature of an ABLE Program – Service
Service. Yup, I have heard that the level of service you receive from ABLE program to ABLE program can vary widely. We can probably all appreciate good service and may not notice it when we receive it but most likely it becomes a priority to us if we see it lacking.
For ABLE programs good service means that it is easy to sign up for the ABLE program, that the ABLE account financial website is easy to understand, that the ABLE program office staff communicate effectively by answering the phone and responding to emails, that the ABLE account systems send account holders or their representatives notifications when contributions and withdrawals have been made, or that the program doesn’t put a hold on contributed money for an extensive period.
Since we have been with North Carolina we have received excellent service in all of the above items, so there isn’t much that we can share that would suggest going with a different program.
The Massachusetts state plan, which is open to anyone, is managed by Fidelity and thus is staffed by a large financial company that not only has a customer service structure already in place but the company is used to servicing a large mix of people that come from various backgrounds of personal financial experience. Fidelity has always been known for their customer service and conservative, helpful approach to saving and investing.
Unlike most state ABLE programs that may staff a small call-in center from 8-5 EST, Fidelity’s Attainable team has various groups nationwide and is available until 9 PM EST.
Have you heard of others who have had difficulty signing up, enrolling, or being and to use funds that you could share in the comments?
Do you have examples of having difficulty accessing your ABLE account or other examples of account service that could be improved?
#5 Deciding Feature of an ABLE Program – Fees
Fees do matter because anyone handling your money wants to be paid for touching your money, even if they do not do anything with your money. Fees are the best marketing word available. It is easy to read, and easy to understand because it looks a lot like the word “free.”
Well ABLE accounts are not really free although many people suggest they are. They are very cheap to have, but just to be accurate, they are not free. These state ABLE programs need to hire staff (program directors, managers, marketers, account support reps) who end up advocating for the adoption of ABLE accounts for those who are disabled (and do a great job at doing it). The state staff then put out bids and hire a 3rd party financial company to manage the financials of each ABLE account to record contributions, and withdrawals and keep track of a daily balance. The 3rd party company or another company is hired to put together simple, straightforward, conservative investment portfolios and act on behalf of ABLE account owners when purchasing and selling those investments. All of this hiring of 3rd party companies adds up to fees, fees, and more fees.
As a side note, today’s retail stock brokerages like Vanguard, Schwab, and Fidelity, offer the same investment services for free in many cases and are able to record profits. Why not have an ABLE account managed by one of these retail brokerages? I guess that is what Massachusetts is doing and thus they have “No annual account maintenance fees.” as part of their state program.
Each state’s ABLE program publishes the details of their fees in their program disclosure document so you can easily see what they are, and how they will add up over time. If you are concerned about them you can compare fees from one ABLE program to another.
Here are some of the fees of 3 of the ABLE programs, as an example of what it costs to manage funds in an ABLE account.
This first table shows the fees that these ABLE programs will charge, or withdraw from the account, every four months. The North Carolina ABLE program charges $36/year while the Nebraska ABLE program charges $45/year to have an ABLE account. The Massachusetts plan does not have an account maintenance fee.
Account Maintenance Fees
| Quarterly Fees | |
| Massachusetts | $0.00 |
| North Carolina | $8.50 |
| Nebraska | $11.25 |
Although an ABLE program may have a low or no maintenance fee at all I would suggest that it not be the only factor that goes into deciding which program to use but when taken into account with other deciding factors it is helpful to know what fees will be incurred when managing the account.
Investment Portfolio Fees
When choosing to invest ABLE funds into the various investment choices there will be fees associated with using those investment funds. The underlying investment funds will have a fee and the state ABLE program will add a fee on top of those fees for a total investment fee. The investment fee is commonly known as the investment fund expense ratio (so it is already calculated into the overall return of the investment fund) and the “Program Fee” is a percentage of the total amount of money in the ABLE account that will be deducted from the account balance when reporting gains. Here is an example of the top 3 state ABLE programs’ investment fees for the most aggressive investment option.
| Investment Fee | Program Fee | Total | |
| Massachusetts | 0.69% | 0.17% | 0.86% |
| North Carolina | 0.05% | 0.26% | 0.31% |
| Nebraska | 0.04% | 0.40% | 0.44% |
The Massachusetts plan has the highest “Investment Fee” while having the smallest “Program Fee”. The “Investment Fee” is not significant in this case since the aggressive investment fund in the Massachusetts plan outperforms the other ABLE program’s aggressive investment options, provided that the investment fee is already calculated into the reported performance of the fund. What is significant, however, is that the fee that they charge to manage the funds in the ABLE account is the smallest of all 3 of the programs listed. This is probably because Fidelity already does this kind of business for millions of other financial accounts and the incremental cost to them is minimal when compared with any other ABLE state program that hires a 3rd party company to service much fewer accounts.
#6 Bonus Feature – Limited/No Clawback Provision
When ABLE programs were first created in 2014 and beyond there was a built-in provision in each ABLE account that Medicaid could “claw back” or get paid back for all of the Medicaid expenses that had occurred on behalf of the account holder after the ABLE account holder passed away.
Many people are put off of ABLE accounts because of this provision. I’m not that worried about it because I believe that the positive features of an ABLE account far outweigh this negative provision and that the ABLE account can be used to create a fair amount of value before it gets terminated upon the death of the account holder. By that date (the death of the account holder 60 years from now we hope) the ABLE account will have been a great tool to use to save excess funds and if invested will have created much more available funds for the benefit of our loved one for many years.
Since ABLE programs were started back in 2014 several states (Arkansas, California, Colorado, Florida, Indiana, Iowa, Maine, Maryland, Nebraska, Pennsylvania, Tennesee, Virginia, West Virginia, and maybe others by now) have passed legislation that either limits or eliminates the clawback provision for their state residents. This feature may be of consideration to you if you live in one of these states that have passed legislation preventing clawback of ABLE accounts.
Feature Conclusion/Score Card
So, where do these features leave us in evaluating an ABLE state program? If we try to score the 3 top performers (top performance investment return – to date) we find that the Massachusetts plan is in the lead.
For me, of greatest importance, and perhaps for many of you (remember your mileage may vary if your own state provides a state tax deduction/credit or limited clawback) the Massachusetts plan outperformed the other available ABLE plans in the most aggressive investment option.
Since I live in Texas and we do not have state taxes the state tax deduction/credit was not an important feature in my evaluation so I weighed each program equally.
The contribution holding time is within reason for North Carolina and Nebraska but Fidelity manages incoming funds every day for millions of accounts so their clearing procedures are most likely much more robust.
As an established, customer-oriented financial operating business, Fidelity offers extended hours of support for ABLE accounts, while other state ABLE programs operate more like state agencies, which is to be expected. If you want to connect with North Carolina or a number of many of the other state ABLE programs on the phone, you will most likely need to take time off of work to be able to visit with them during normal government working hours.
And last, fees. Getting an ABLE account is free, but having them manage the account will always cost something. The Massachusetts plan has some of the lowest fees available so why not save on fees?
| Massachusetts | North Carolina | Nebraska | |
| Investment Return | 1 | 2 | 3 |
| State Tax Deduction/Credit | 1 | 1 | 1 |
| Contribution Holding Time | 1 | 2 | 2 |
| Service | 1 | 2 | 2 |
| Fees | 1 | 2 | 2 |
| Total | 5 | 9 | 10 |
We have been happy with using the North Carolina ABLE program but after reviewing these details we may change over to the Massachusetts plan in the near future.
For those who have used the Massachusetts plan, what has been your experience?
Are there other plans that stand out with features that I have not included here?
Please share your comments below.
