Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014. This created tax advantaged accounts for people with disabilities. These accounts grow and are tax free. The money in the accounts can be used for qualifying expenses. Before the passing of the ABLE Act in 2014, if a person with disabilities had more than $2000 in their name, they would lose Medicaid coverage or Supplemental Security Income (SSI). ABLE accounts allow people with disabilities to have more than the $2000 in their name within the guidelines without losing these benefits.
In order to qualify for an ABLE account, the beneficiary must have become blind or disabled before the age of 26. When opening an account, a person with disabilities may or may not be asked to provide documentation if they are not already receiving Medicaid coverage or SSI. In order to self-certify, the person with the disability will just need documentation from the doctor. Those already receiving Medicaid coverage or SSI should not have to provide documentation in order to open an account.
The ABLE account limit is $14,000 per year. This keeps the account from incurring the gift tax. ABLE accounts cannot grow above $100,000 without affecting other benefits. If the account grows above $100,000, Social Security payments are suspended until the account falls below the $100,000. These accounts are administered at the state level, but this does not mean that the account must be acquired in the home state. It is beneficial to investigate and find the account that best fits the needs of the disabled person. Fees are one consideration. Another is how the funds are accessed. If immediate access is necessary, an account that offers a debit card option may be important. This is something that must be explored individually. An elder law attorney and financial planner can be helpful in deciding which plan best meets an individual’s needs.
Funds in the ABLE account can, according to the ABLE Act, be used for "qualified disability expenses.” It further defines qualified disability expenses as "expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.” ABLE accounts can be used to pay for housing, transportation, assistive technology, support services, health, prevention and wellness, employment training, education, funeral and burial expenses, among others. It is important for a disabled person to speak with an expert, in order to take advantage of the full benefit of the account, as many people may be unaware of expenses the account can cover.
It is recommended that receipts and records for the expenses paid for with an ABLE account are kept as a record for the account. The IRS is responsible for regulating the accounts. Having records of the expenses the account was used for is very helpful in case of an audit. It may also be beneficial to keep a record of how each expense is related to the disability. Taking these measures will provide documentation if any expense covered by the ABLE account is ever questioned or if the account is audited.
ABLE accounts can benefit many Americans with disabilities. Many people continue to choose special needs trusts and other financial options. There is no limitation for one or the other. For those who can afford both, this may be an option to explore. The benefits of both outweigh one or the other. ABLE accounts are just one tool for those planning for the future of people with disabilities.