The #1 Reason to Have an ABLE Account

There are a number of good reasons to have an ABLE account but the number one reason is not so obvious unless you have been receiving SSI for a number of months or years.

A couple of good reasons to have an ABLE account are built into the description of an ABLE account, “a tax advantaged savings and investment account for those with a disability”. These may be great features of an ABLE account but the number one reason to have an ABLE account is to avoid “spend down”, even if an ABLE account was not tax advantaged or included investment options.

What is “Spend Down”?

“Spend down” is what is triggered when the balance of a bank account of an individual, that is receiving SSI and/or Medicaid, gets close to $2,000 and money has to be spent to keep the balance under $2,000.

SSI/Medicaid recipients qualify for public benefits, in part, because they cannot “perform any substantial gainful activity” (are not able to work for substantial income because of their disability). They are also also required to not have more than $2,000 in available resources (they have been required to be poor). The most common resource that they may have is a bank account balance. Monthly expenses of an SSI recipient includes rent, food and miscellaneous living expenses. The current maximum monthly benefit of SSI is $841(2022). After expenses, remaining funds may be saved month to month as long as the bank account balance does not exceed $2,000. As the account balance approaches $2,000 the individual is required to “spend down” the bank account balance to get the bank account balance below the $2,000 max resource limit, no matter what their current needs may be.

For example, a family has two daughters that receive SSI. One of the daughters ends up spending all of her SSI funds every month on fun things so she rarely has a need to “spend down”. Her sister, on the other hand is not as social as her sister and is looking forward to purchase some larger ticket items so she wants to save some of the money but cannot save beyond the $2,000 threshold. The imposed threshold triggers a monthly “spend down” tradition, keeping her in a poverty cycle, along with her sister.

What gets included in the “spend down” for these two sisters? Perhaps things that are not immediately needed but if not purchased may mean the suspension of public benefits including SSI and Medicaid or important Medicaid waivers. Spending down may mean more clothes in the closet, more movie tickets that are not really necessary, and other excessive entertainment. Many of these extra expenses are mandated to be spent, by law, at the cost of not being able to save for future, and often times, more expensive needs.

Having an ABLE account allows for excess SSI funds, if available in any given month, that have not be spent on necessities, along with other funds donated by others, to be saved and invested for future needed purchases. The future, for any of us, but especially those with disabilities, includes a rainy day and often life changing events that need to be paid for with any and all funds available.

While SSI rules still include the requirement that available resources for an individual not exceed $2,000, the money saved in an ABLE account is not included in the calculation of that resource limit (up to a $100,000 balance).

Traditional “Spend Down”

Let’s take a look at what traditional “spend down” may look like for a typical SSI recipient.

• Monthly deposit of $943 (for 2024) is made on the 1st of each month
• Various stimulus checks were distributed during 2021 that increased the balance of the bank account, which further increased the need to “spend down” funds
• Monthly rent is paid by the 5th of each month
• Other expenses are also tabulated but are also required to be spent to ensure that the bank account balance never gets close to $2,000.

Traditional Spend Down
SSA requires that the bank balance < $2k

• All distributed funds (SSI & stimulus checks) are required to be spent
• Because all funds need to be spent there is no opportunity to save funds
• This pattern of required spending keeps individuals in a poverty cycle – requiring them to spend money on things that they most likely do not need for that month and eliminates any way to save

Using an ABLE Plan

Lets now look how having an ABLE account can reduce and eliminate the need to “spend down” and make it possible to save for the future.

• Monthly deposit of $943 (for 2024) is made on the 1st of each month
• Various stimulus checks were distributed during 2021 that increased the balance of the bank account but those funds can be transferred over to an ABLE account – which acts as a savings account
• Monthly rent is paid by the 5th of each month
• Other needed expenses can still occur when needed, and any extra funds can be transferred to an ABLE account to keep the bank account balance under the $2,000 threshold.

ABLE Savings Plan
< $2k bank balance is still required by SSA

• All distributed funds (SSI & stimulus checks) can be spent on what is important and the remaining funds can be saved and avoid “spend down”
• There is an opportunity to save for the future using an ABLE account

In this simple example there is a $5,000 swing between the required spending for the year and being able to save those funds for a future need. With the funds being invested for the future those funds will create more funds making it even more of a contrast over time between having $0 savings and being ABLE to have money availABLE for something important in the future.

Avoid “Spend down” and start saving by getting an ABLE account today.

The only way to avoid “spend down” and be able to save, when receiving SSI/Medicaid, is to get an ABLE account and start saving any remaining monthly SSI funds into the ABLE account.

Have you heard about ABLE accounts? Do you currently have an ABLE account? What was the reason for which you started one? Which state ABLE program did you open an account with?