Are you ABLE?

We are seeing more and more clients with children or grandchildren who have special needs. Adapting to life with special needs or a disability is never easy, but there are steps that can be taken for those individuals to achieve greater financial security and independence.

Achieving a Better Life Experience (or ABLE) accounts are tax-advantaged savings accounts that can help fund ongoing living expenses for special needs individuals and are one of the primary savings vehicles to assist those with disabilities. These accounts are similar to 529 education accounts as distributions can be tax free, but instead of using the funds solely for educational expenses, ABLE accounts allow you to fund expenses that may arise from a disability, such as housing, transportation, education, and health care costs. Research from the National Disability Institute shows that a person with a work-disability requires 28 percent more income to maintain the same standard of living as someone without a disability.¹ With the high and rising costs of healthcare, standard government assistance programs such as Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) will most likely not be enough to provide adequate funding for a disabled individual. ABLE accounts allow disabled individuals to save more without impacting their eligibility for other government benefit programs.

There are some important considerations to note about ABLE account eligibility. First, only individuals with a disability starting before the age of 26 can open this type of account, and it will always be opened in the disabled person’s name, regardless of who is contributing. This individual must meet the required severity of disability in one of two ways: they are currently receiving SSI or SSDI benefits, or they get a disability certificate from a physician proving the individual is severely limited by their disability and that the disability started before the age of 26.

While an ABLE account can only be opened in the name of the disabled individual, there are few limitations as to who can contribute. In 2024 the annual contribution limit is set at $18,000 and it can come from the account holder, friends or family of that individual, a special needs/pooled trust, or a 529 College Savings account rollover. In addition, if the account holder is employed and does not contribute to an employer-sponsored retirement plan, they may be able to contribute an additional $14,580 from their earnings, or more in certain states.² It is important to remember that you can save up to a balance of $100,000 in an ABLE account without affecting SSI. Additional savings beyond this amount will be counted as a resource in your SSI benefits calculations and may suspend your SSI payments. When the beneficiary of an ABLE account passes away, funeral and burial expenses are paid first and then Medicaid receives reimbursement if the disabled individual received Medicaid benefits after the ABLE account was opened. This is known as the “Medicaid payback” rule, and the amount you have to pay back is based on the state rules in which the account was opened.³

For larger sums of money, it may be beneficial to consider a Special Needs Trust (SNT), a legal arrangement designed to manage and protect assets for individuals with disabilities while preserving eligibility for government benefits. A SNT is considered a “person” in the eyes of the IRS and can contribute directly to an ABLE account. SNTs can be used in conjunction with an ABLE account, acting as a savings vehicle for any amount above the $100,000 limit.

For more information on ABLE accounts and how they can be used as a tool to assist disabled individuals build savings and plan for future needs, please contact a member of your team here at West Financial.

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Sources:

¹Auchenbach, K. (2020, October 14). The extra costs of living with a disability in the United States. National Disability Institute. https://www.nationaldisabilityinstitute.org/reports/extra-costs-living-with-disability/

²Howard, J. (2024, May 1). Able account contribution limits (2024). ABLE National Resource Center. https://www.ablenrc.org/able-account-contribution-limits-2023/

³What are able accounts?. ABLE National Resource Center. (2024, September 25). https://www.ablenrc.org/what-is-able/what-are-able-acounts/

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