ABLE Accounts Can Help People With Disabilities Save Tax-Free
By Penelope Wang (Reprint from Consumer Reports)
New rules let some individuals put away more money in these plans, while still preserving their benefits
People with disabilities face huge financial challenges. Yet for years, they could not save money, or even work part-time, without endangering their Supplemental Security Income (SSI) or other means-tested benefits.
Enter the Achieving a Better Life Experience (ABLE) account, a low-cost, easy-to-access plan that began rolling out in 2016 and is now available nationwide. Modeled after 529 college savings programs and offered by individual states, these accounts let children or adults with disabilities incurred before age 26 accumulate savings tax-free—for most, you can save as much as $100,000—without endangering such benefits. Anyone, including the beneficiary, can contribute to these accounts, up the limit.
But some people may be permitted to put even more away in ABLE plans, thanks to changes in the 2017 tax law. Eligible individuals with disabilities who work can make up to $12,140 in earned income without endangering benefits, as long as they put it in their ABLE account. And those with a 529 college savings plan can roll that money over into an ABLE account.
“These are helpful improvements,” says Michael Morris, executive director of the National Disability Institute (NDI), a nonprofit group. “But the biggest challenge is making more eligible individuals aware of the advantages of these accounts.”
Without access to an ABLE account, an individual with disabilities who has more than $2,000 in savings might lose out on essential benefits, such as SSI and Medicaid. (Special needs trusts also allow those with disabilities or their families to put money away without risking benefits, but they are expensive to set up.)
There are about 8 million disabled individuals who are eligible to save in an ABLE account, research by NDI shows. As of the end of 2018, there were nearly 35,000 ABLE accounts, which held more than $170 million in assets, according to recent data from Paul Curley, director of college savings research at Strategic Insight, a financial services research firm.
The Basics of ABLE Accounts
ABLE accounts do have a major drawback—as noted above, you must have incurred the disability before age 26. But for many people with disabilities, these plans offer much-needed financial flexibility. To figure out whether an account is right for your needs, here are answers to five key questions:
Do I Qualify?
You must have had the disability officially diagnosed before turning 26. Since 2016, bills have been introduced in Congress—including new legislation now in the House and Senate—that would raise the qualifying age to 46. But it’s not clear whether this amendment will gain enough support to pass this year.
If you had an early diagnosis and you’re already receiving SSI or Social Security Disability Insurance (SSDI), you automatically qualify. If you aren’t receiving those benefits but your disability fits Social Security’s criteria, most plans let you “self-certify” by providing a doctor’s note and date of diagnosis.
