An ABLE account can help you save
Disabled individuals and their families can often find themselves in a difficult situation when it comes to their long-term financial security. A few years ago, the Achieving a Better Life Experience (ABLE) Act established tax-advantaged savings programs for these individuals. Anyone who became disabled prior to his or her twenty-sixth birthday is eligible for an ABLE account. If you meet this age criteria and are also receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations, plus receive a letter of certification from a licensed physician. It’s important to note that you need not be under age 26 to be eligible for an ABLE account; it is the age of onset of the disability that matters. Additionally, the account owner does not need to be the person eligible to open the ABLE account. Instead, an authorized individual, such as a parent or guardian, can open it.
Anyone can contribute to a person’s ABLE account as long as the annual contribution amount does not exceed the annual gift tax exemption amount ($15,000 for 2018). Furthermore, after Dec. 22, 2017, an ABLE account’s designated beneficiary can contribute an additional amount up to the lesser of the federal poverty line for a one-person household ($12,060 for the continental U.S.) or the individual’s compensation for the year. The new law requires that a designated beneficiary (or person acting on the beneficiary’s behalf) maintain adequate records for ensuring compliance with such limitations.
ABLE accounts provide many benefits including:
- Tax-free growth of the investment.
- Tax deductible contributions at the state level.
- Saver’s credit eligibility.
- Acceptance of rollovers from qualified tuition programs.
Another benefit is that the assets generally do not count against resource limitation requirements for several public aid programs. In addition, some states protect the account from inheritance taxes as well as Medicaid repayment requirements. The funds withdrawn from an ABLE account must be used for qualified expenses, which may include costs for education, transportation, job-related training, medical, assistive support, funeral costs and more.
The specifics of establishing an ABLE account vary from state to state.