How to Use an ABLE Account with a Bank Account

An ABLE account is similar to a bank savings account in that it can be used for saving excess funds. In addition, the funds in an ABLE account can be invested and the earnings grow tax free.

Typical Checking and Savings Bank Accounts

A typical way to save and manage money is to have both a checking and savings account at a bank. The checking account is used for daily expenses. Excess funds are transferred to the savings account which grows over time. If a large expense needs to be paid funds can be transferred from the savings account back to the checking account.

The dollar numbers shown in the above image are to illustrate the relative amount of money that may be in each account.

Typical Investing Account

As a savings account grows, funds may be transferred to a separate investment account at a retail broker like Schwab, Fidelity, or Vanguard. Those funds may get invested for the long term into stocks, bonds or other investments.

Money can be transferred back and forth from any account to any other account. When a large purchase needs to be made, like a car or a house, then funds from either the savings or investment account may be transferred to the checking account and the purchase is made.

A Bank Account with an ABLE Account

If an individual with a disability is receiving public benefits such as SSI or Medicaid then they typically have a bank account where SSI funds are deposited on the first day of every month. The Social Security Administration requires that the bank account must be uniquely titled, if there is a representative payee that will manage the account. Although the title of the bank account may be a little different than a typical bank account the account acts the same as a checking account, including having access to use a debit card for day to day transactions.

Since the Social Security Administration outlines that “To get SSI, your countable resources must not be worth more than $2,000…” then the bank account needs to stay under that limit. The number one reason to have an ABLE account is to be able to save funds over that $2,000 limit and not jepordize public benefits like SSI/Medicaid. Without an ABLE account the bank account will always be in “spend down” mode.

After rent, food and other daily expenses are paid for, any excess funds can be transferred into an ABLE account by making a simple electronic transfer.

When a need arises for a larger purchase, funds can be transferred from the ABLE account back to the bank account and the purchase can be made using the bank account debit card.

Any wwithdrawal from an ABLE account needs to be for a specific purchase and the expense needs to be a qualified disability expense (known as QDEs). A QDE, as defined by the IRS, “must relate to blindness or disability, including expenses for maintaining or improving health, independence, or quality of life.” The consensus on expenses that would not be a valid QDE are withdrawals that are used for gifts, gambling or purchasing alcohol.

Things to Keep in Mind when Using an ABLE Account with an Bank Account

1. Do NOT use an ABLE account for every day spending, this includes not using the ABLE account provided debit card
   • An ABLE account is for saving and investing so avoid using debit card that is offered with an ABLE account
   • Use the bank account, and their debit card, for day to day spending. The bank account is for daily expenses. An ABLE account is for saving and investing.
   • Since one of the features of an ABLE account is tax-free growth and each ABLE account has a limit on how much money can be deposited, every dollar that is in an ABLE account should be used to grow the account instead of being withdrawn for daily or monthly expenses.
   • An ABLE account will not grow as fast as it could if money is deposited into the account only to be withdrawn in the same month.
   • Use the bank account for daily expenses like rent, food and entertainment. Transfer funds back from the ABLE account to the bank account when needing to pay for larger expenses such as medical bills or an iPad.
   • ABLE programs market that one of the features of an ABLE account debit card is to provide account holders “the freedom to spend” and the “freedom to choose” and to “manage their own funds” by offering a debit card. Although some of these principles are good it is more wise for the ABLE account holder and/or their payee to use their freedom and use the bank debit card instead of an ABLE account debit card.
2. Carefully plan any deposits into the ABLE account because of yearly maximum thresholds
   • Since there is a yearly limit of how much money can be deposited into an ABLE account careful financial planning can take advantage of the tax-free growth available in an ABLE account while keeping enough funds available in the bank account to be able to pay for daily needs.
   • A total of $17,000/year (as of 2023) may be transferred/deposited into an ABLE account from either the account owner or others.
   • An additional $12,880/year of earned income (from working at a job) may also be deposited into an ABLE account by the account owner.
   • Typically the ABLE program will not accept any further deposits once the yearly thresholds are met.
3. If receiving SSI, keep the ABLE account balance under $100,000
   • SSA outlines “If an ABLE account balance exceeds $100,000 … we suspend the SSI payment until the countable resources are below the allowable limit.”
   • Medicaid benefits are not affected if the ABLE account balance exceeds $100,000.
4. Do not set up direct deposit of SSI or your earned income into an ABLE account
   • It is best to have SSI or earned income deposited directly into a bank account for daily expenses and only transfer excess funds to an ABLE account. This approach allows for more funds to be deposited into an ABLE account instead of the ABLE account acting as a pass through of planned, monthly, expenses.
   • If you are receiving SSI, and have a representative payee, you are not able to have SSI funds directly deposited into an ABLE account anyway.
5. Plan ahead when needing funds from an ABLE account
   • Some ABLE programs take longer than others to get funds transferred back to the bank. The program may need to sell investments to be able to provide the cash needed for your request, which usually takes a couple of days. The transfer of funds back to your bank may also take a couple of days. Banks then sometimes restrict the funds for another couple of days while they allow for the transfer funds to settle.
   • Take into account the total time it will take to make the transfer and for funds to settle.
   • Some ABLE programs may take up to 30 days to settle funds that were contributed by anyone but the account owner. These ABLE programs would not provide access to the transferred funds until they are settled. Some ABLE programs refer to this long restriction time as the “Contribution Holding Time”.
6. Record each expense from an ABLE account
   • Recording each expense from any account fosters good financial habits, especially for those with limited funds
   • You are responsible for determining if a withdrawal from an ABLE account is a valid QDE. The ABLE program will not ask the reason for a withdrawal from an ABLE account. They will simply perform the transfer of funds that you request.
   • If any ABLE expenses are used for housing, the SSA outlines that those expenses need to be used within the month that they are transferred from the ABLE back into the bank account. Other QDEs, not related to housing, could be left in the account for some amount of time (allowed time unknown) if not spent right away. It would be good practice to spend all withdrawals within the same month that they are withdrawn from an ABLE account.