Disability Law: What is the ABLE Act?
One of the biggest concerns for people with disabilities is having and managing money. The costs of managing a disability are staggering and can prevent the disabled from working. While many disabled people rely on Social Security (particularly Supplemental Security Income/SSI or Social Security Disability SSI/SSDI) as a source of income, current policies prevent them from saving more than $2,000 in cash savings and more to qualify for these benefits. In practice, this forces the disabled to live below the poverty line to get much needed public assistance.
Enter the Achieving Better Life Experience (ABLE) Act. Signed into law in 2014, the ABLE Act allows people with disabilities and their families to establish a tax-exempt savings account allowing them to spend income-free tax funds on “qualified disability expenses”. And as of mid-2016, states will begin accepting applications for establishing ABLE accounts.
So what are these accounts and how do you get one? Read more to find out!
ABLE Account Basics
An ABLE account is a tax-exempt savings account for disabled individuals and their families. This means contributions made to and income earned by the account are not taxed. The account supplements (not replaces) benefits provided through private insurances, the Medicaid program, the SSI program, the beneficiary’s employment and other sources. Participating individuals (including family and friends) can contribute up to $14,000 (adjusted for inflation) annually. The maximum amount these accounts can vary from state to state, most of them set at around $300,000 per plan. If the disabled person receives SSI and Medicaid assistance, the first $100,000 in the ABLE account is exempted from their SSI $2,000 individual resource limit (anything more than $100,000 will disqualify them from SSI eligibility) and maintain Medicaid eligibility. Only one ABLE account can be made per eligible individual.
ABLE Account Eligibility
To be eligible for an ABLE account, the participant must be an individual with significant disabilities, including mental health conditions, that developed before turning 26 years old. (Participants can be older than 26 provided they have documentation of their onset disability prior to age 26.) Individuals who meet this criteria receiving SSI and/or SSDI are automatically eligible for ABLE accounts, and those not receiving them must meet SSI criteria for significant functional limitations.
ABLE Account Expenses
ABLE accounts allow the disabled individual to spend their money on “qualified disability expenses”. The law defines “qualified disability expenses” on any expense needed for living with a disability. This includes education, housing, transportation, employment training and support, health care expenses, and more. ABLE accounts thus provides more choice and control for disabled beneficiaries and their families than special needs or pooled trusts and costs less to set up. (Click here to learn more about special needs and pooled trusts.)
How Do I Get an ABLE Account?
Every state is responsible for establishing and operating ABLE programs. If a state doesn’t have its own program (such as California), it may contract with other states to offer ABLE accounts to eligible applicants. If accepted, states are likely to offer the qualified individuals and families multiple options to establish their ABLE account with varied investment strategies similar to 529 College Savings Plans.
For more information on the ABLE Act and ABLE accounts, you can check out the following websites:
ABLE National Resource Center (ANRC)