Our Thoughts

For Achieving a Better Life Experience – ABLE 101

By: Coleman Fox 

The steep rise in healthcare and higher education expenses over the last 20 years has given rise to creative new finance options to help Americans manage costs. One example is a  529 qualified tuition plan, created so families can help loved ones avoid adding to the nation’s unprecedented $1.6 trillion in student loan debt. This popular option allows for tax-free growth and distribution of savings spent on qualified education expenses like college costs. See IRS for additional information for tax savings strategies for education funding. 

However, Section 529 of the tax code extends beyond college savings. 

ABLE Expands Financial Horizons

People who live with disability are among the most vulnerable to the increased costs in education, health, and other crucial living expenses. This is especially true when someone does not qualify for public benefits such as Medicaid, Social Security Income (SSI), or the Supplemental Nutrition Assistance Program (SNAP). 

savingTo cover these gaps, President Barack Obama signed the Achieving a Better Life Experience (ABLE) Act into law in December 2014 to create a new kind of tax-free savings account. An ABLE account allows eligible individuals and their families to open a savings account for tax-free deposits and withdrawals to cover Qualified Disability Expenses. These include: 

  • Assistive technology 
  • Education 
  • Employment training and support 
  • Financial management 
  • Funeral/burial expenses 
  • Health prevention and wellness not covered by Medicaid, Medicare, or private insurance 
  • Housing 
  • Legal fees 
  • Personal support services 
  • Transportation 
  • Other expenses that help improve health, independence, and/or quality of life 
  • Administrative services 
  • Expenses for oversight and monitoring 

  Eligibility Requirements 

  • The account holder must have experienced the onset of disability before age 26. 
  • If you receive benefits under SSI and/or Social Security Disability Insurance (SSDI), you are automatically eligible to establish an ABLE account. 
  • If you are not an SSI and/or SSDI recipient, you can still open an ABLE account if you meet Social Security’s criteria for “significant functional limitations” and receive a letter of disability certification from a licensed M.D or D.O. 
  • You are eligible for only one ABLE account and may open and oversee your own account if you are capable. Otherwise, the account must be opened and overseen by a parent or authorized agent who is a U.S. citizen. 
  • You may open an ABLE account under any state’s program, even if your own state does not offer one. There are more than 40 ABLE programs nationwide. 

Contribution Limits 

  • The limit for total annual contributions from all participants, including family and friends, is $15,000 for a single tax year. 
  • The overall total limit for an ABLE account is set by state law and currently ranges between $235,000 and $529,000. 
  • If you receive SSI, your cash benefit will be suspended if your ABLE account exceeds $100,000. Cash benefits will resume when the account falls back below $100,000. This suspension limitation has no effect on your Medicaid eligibility or assistance. 
  • You can make your own contributions to your ABLE account. If you do not participate in an employer-sponsored retirement account, you may contribute equally to your compensation for the tax year or the poverty line amount of $12,490 ($14,380 in Hawaii and $15,600 in Alaska). 
  • You may roll over up to $15,000 from 529 accounts into your ABLE account. 

Investment Options 

The ABLE Act lets you choose from a variety of investment funds, including aggressive growth, moderate growth, conservative income, and money market funds. ABLE permits you to change your investment mix up to two times a year. Some custodians and money managers, such as American Funds and Fidelity, allow you to open an ABLE account with them directly and often offer more investment options. 

When evaluating your investment choices, the ABLE National Resource Center recommends you consider issues such as: 

  • Minimum contribution requirements. 
  •  Fees to open and maintain the account, possible discounts over time. 
  • Restrictions on withdrawals. 
  • Value-added incentives for contributions, such as match or reward programs. 
  • Financial literacy programs. 

The ABLE Act makes investment opportunities more inclusive for people who have lived with the challenges of disability from a young age. If you or a loved one wants to explore your tax-free ABLE options, feel free to contact an experienced advisor at FJY Financial to get started.