Understanding ABLE Accounts: Accounts With Tax Benefits for Individuals With Disabilities

  • Firm News
August 26, 2021

The Achieving a Better Life Experience (ABLE) Act of 2014 has allowed thousands of individuals with disabilities to actively plan for their future in a tax advantageous manner. However, understanding how to use ABLE accounts to their best advantage can be tricky. To find out how these accounts work, and more, read below:

What Are Able Accounts?

ABLE accounts provide qualifying individuals with the opportunity to save up to the annual gift tax exclusion amount of $15,000.00 per year in post-taxed dollars, with account balances capped at $400,000.00. The yearly contribution limit is based upon the 2018 and 2019 values provided by the Internal Revenue Service and is subject to change in the future to account for inflation. Disabled individuals who earn income during the year may be eligible to contribute funds beyond the $15,000.00 in an amount equal to the lesser of the account holder’s gross wages or the federal poverty level in the account holder’s state of residence. The money placed in these accounts is invested by the state, and account holders can choose the level of risk by which their money is to be invested based on state-provided investment plans.

Contributions & SSI

Importantly, the first $100,000.00 contributed to this account is excluded from determining one’s Supplemental Security Income (SSI) resource limit. Any amount over $100,000.00 is counted against SSI resource limitations and may impact one’s ability to continue to receive such benefits, but it will not impact eligibility for Medicaid. No amount of income retained in an ABLE account will impact eligibility for Social Security Disability Insurance (SSDI). SSI and SSDI both offer cash benefits to disabled individuals. However, SSI is only available to disabled individuals who have either never worked, or those who haven’t earned enough working credits to qualify for SSDI. To qualify for SSI, one must have assets of less than $2,000.00 for an individual and $3,000.00 for couples. Alternatively, SSDI is available to disabled individuals under the age of 65 and who have earned enough working credits.

ABLE Accounts & Withdrawals

Although contributions to such accounts are not tax-deductible, withdrawals are tax free when used for qualified expenses. Such expenses can include housing, employment training, education, transportation, and healthcare expenses, for example. Amounts withdrawn for non-qualified expenses are treated as ordinary income to the beneficiary and will be taxed at the individual’s ordinary rate, and other taxes and penalties may apply. A great feature for these accounts is that any person can make contributions to the account! Thus, family and friends, as well as the account holder, can deposit funds into the account on behalf of the account holder.

ABLE accounts are state regulated, thus administration of such accounts, including the investment options and fees and costs associated to such accounts, may differ from state to state. A qualified individual has the option of opening an ABLE account in any state, regardless of his or her place of residency. To qualify for an ABLE account, an individual must have a qualifying disability that existed prior to the age of 26, and such individual may only have one ABLE account. Qualifying disabilities are determined by the Social Security Act’s definitions and requirements. Individuals who meet the age requirement and are already receiving SSDI or SSI benefits automatically qualify for ABLE accounts.

Let Our Attorneys Help You

ABLE accounts are a fantastic option for disabled individuals looking to save for their future. If you need help applying for an ABLE account, or disputing a wrongful denial, our team can help you.

Contact Jorgensen, Brownell & Pepin, P.C. to find out if you or your loved ones may qualify for an ABLE account.

Get The Help You Need

Get JBP Legal’s experience on your side. Contact us for questions or a consultation.