What is an ABLE Account?
An ABLE account is a type of savings account. The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities (designated beneficiaries). Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses.
We normally think of a savings account as being part of a checking account at our favorite local bank or even opening a checking account with an online bank.
An ABLE account is a type of savings account that can only be opened and used online by qualifying individuals. ABLE accounts are provided by and managed by state ran programs, very similar to how states offer 529 College Savings Plans. The plans are so similar that an ABLE account is often referred to as a 529A account. Since most banks do not offer ABLE accounts as a service, they are often not aware of what an ABLE account is or how to enroll in an ABLE account. You can search for and find an ABLE program on-line from almost every state.
An Integral Part of the Financial Plan
An ABLE account is a key part of a successful financial plan for those receiving SSI.
Today
An ABLE account is used to avoid “spend down” and to save money for the future during the years that the individual is receiving SSI.
LATER
When parents of the individual receiving SSI have passed on and a special needs trust is being used for the benefit of the individual (along with them receiving SSDI), an ABLE account can be used to manage funds between the trust and a checking account.
A Savings Account for Today
For an individual receiving SSI funds, those funds are normally deposited automatically into a specific bank account that is in their name and managed by a representative payee. Those SSI funds are used to pay rent and food for the month and other living expenses. To avoid “spend down”, any funds remaining in the bank account can be transferred over to an ABLE account and saved for future qualified disability expenses.
SSA policy requires that the individual receiving SSI not have more than $2,000 total resources available to them at any time. SSI usually determines the total resources to be the available balance of the individual’s bank account balance. They may include other resources if they find some that are available to the individual or in their name, however, the balance of the individual’s ABLE account is not included in counting towards their total resources.
In this snap shot example, the individual receiving SSI may have $1,200 in their bank account while they have also saved $18,000 in their ABLE account and they will still qualify to receive SSI and Medicaid benefits.
Any qualified disability expense may be paid out from the ABLE account by either transferring the funds back to the person’s checking account and paying for it from that account or paying the item directly from the ABLE account (additional fees may apply from the ABLE program for checks or debit transactions). The ABLE program does not audit or ask what the expenses are for, it is up to the individual, their guardian, or who is managing the ABLE account for them, to make sure that the expense is a qualified disability expense.
ABLE accounts have eligibility requirements, contribution limits, investment choices, tax free growth, distribution rules and fee schedules. ABLE account features may vary from state to state but eligibility and distribution requirements are the same from state to state.
A Tool for Later
Once a special needs trust begins to provide benefit to the individual, who was once receiving SSI (which would then be receiving SSDI because both parents have passed on), an ABLE account can receive funds out of the individual’s special needs trust and pay for any qualified disability expenses.
An ABLE account vs. Special Needs Trust
An ABLE account is a great tool for saving funds today because it is easy/free to set up, has very low costs and is easy to manage. Because of the rules of the account it is better suited for lower balances of funds.
A special needs trust usually gets drawn up and is funded with just $10 while the individual’s parents are still alive, but usually gets fully funded and starts being used when both of the parents of the individual with a disability have passed on. It is better suited for very large balances because of the cost and complexity of managing a trust.
