Disability Planning with ABLE Accounts
Article by R. Joseph Ritter, Jr. CFP® EA
If you are a person with disabilities, or know a person with disabilities, who is dependent on supplemental assistance, saving money just became a whole lot easier.
Traditionally, a person receiving supplemental assistance has been forced to maintain substandard living conditions in order to remain eligible for assistance. However, over the past few years there has been a push to offer greater opportunities for disabled individuals, in particular, to achieve more financial independence. This effort made great strides when the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was passed into federal law.
The ABLE Act allows persons with disabilities to maintain a savings account and not be penalized through the loss of eligibility for supplemental assistance. These savings accounts are known as ABLE Accounts.
There are five key guidelines for using ABLE Accounts. First, the disability must have had an onset by age 26. That doesn’t mean the ABLE Account must be opened by age 26. A person of any age may open an ABLE Account, but the disability must have had its onset before age 26.
Second, a maximum of $14,000 may be deposited into an ABLE Account annually. This amount may be adjusted for inflation in the future. There is no restriction on who may contribute funds. The disabled person may contribute his or her own funds and family members and friends may contribute into the ABLE Account. For individuals seeking to make gifts but have not for fear of jeopardizing a disabled person’s eligibility for supplemental assistance, an ABLE Account may be a good fit.
Third, a maximum of $100,000 may be saved into an ABLE Account, at which time Social Security Income (SSI) can be lost. It is noteworthy, however, that no other supplemental assistance program will be affected. Once the balance is under $100,000, SSI can resume.
Fourth, funds in the account are to be applied toward qualified disability expenses. This term is rather broad, however, because it is includes housing, medical, transportation, education, job skills, and other expenses which improve quality of life.
Finally, upon the death of the disabled individual, the balance is subject to claims by the state Medicaid administrator. This is true of all individuals receiving Medicaid. When a person receiving Medicaid passes away with assets of any value, a claim can be made in his or her estate to recover funds expended on his or her behalf. ABLE Accounts are not exempt from Medicaid recovery.
The ABLE Account can be a great addition to two other popular programs geared toward assisting people, especially disabled individuals, gain financial independence. Individual Development Accounts are operated by private non-profits and partially funded by the federal government for the purpose of allowing individuals to save without jeopardizing eligibility for supplemental assistance. Savings may be applied toward purchasing a home, starting a small business, or going back to school. The other program, Plan to Achieve Self-Support, is operated by the Social Security Administration to assist disabled individuals secure income from self-employment without jeopardizing eligibility for supplemental assistance.
For those individuals who find success through the Individual Development Account or Plan to Achieve Self-Support, or for those individuals who are already earning an income, the ABLE Account offers a tremendous opportunity to increase financial independence.
Because they can be funded by family members and friends, ABLE Accounts may also play a role in estate and financial planning.