Published on October 8, 2021 in the Rochester Business Journal

In 2014, the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act created a mechanism whereby disabled Americans could establish a tax-advantaged savings account, appropriately referred to as an ABLE account, to supplement their lifestyle needs. As defined by the Social Security Administration (SSA), being disabled is described as the inability to do any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

Based on the SSAs definition of disabled, any individual whose disability manifested itself prior to age 26 is eligible for an ABLE account. The individual doesn’t have to be younger than 26 to open the account, their disability must just have been present and appropriately documented prior to the age of 26. Pending legislation is expected to extend this parameter to age 46.

With an ABLE account, the owner of the account is also its beneficiary and only one ABLE account is allowed per person. The maximum eligible contribution to an ABLE account is currently $15,000 (total) per year, although this amount will likely be adjusted upward for inflation over time. Total allowable ABLE savings are also restricted, generally following State guidelines for education-related 529 savings accounts, with limits ranging from $235,000 to $529,000 ($529,000 in NYS). Anyone can contribute to a disabled individual’s ABLE account and contributions are always made with after-tax dollars. Contributions are not deductible on one’s Federal return, but may be deductible for State income tax purposes.

In instances where an individual is gainfully employed and doesn’t contribute to an employer-sponsored retirement plan, the ABLE Act generally allows for additional contributions above and beyond the $15,000 annual funding limit. These additional contributions can be up to the lesser of the disabled individual’s compensation for the year or $12,760 in 2021, coinciding with the definition of the poverty line.

Notwithstanding the above, there may be additional restrictions placed on total allowable ABLE savings limits if the individual is currently receiving Supplemental Security Income (SSI). In these instances, total allowable ABLE savings is limited to no more than $100,000. When ABLE savings exceed this amount, SSI benefits will cease until the account falls below $100,000 again. The total value of an ABLE account has no impact on Medicaid eligibility.

There are several benefits associated with an ABLE account. Contributions grow on a tax-deferred basis and qualified withdrawals can be made tax-free for eligible expenses, like the way a Roth IRA works. Eligible expenses generally include outlays for education, food, housing, transportation, employment training, healthcare, financial management and/or any other expense that improves the health, independence or quality of life of the account owner.

Aside from being a tax-deferred and potentially tax-exempt savings vehicle, funds in an ABLE account can be invested in a number of different investment portfolios and the allocations of the account can be changed up to two times per calendar year. In New York, four Vanguard portfolios are offered and managed through Ascensus Broker Dealer Services, LLC, but you’re not limited to opening an ABLE account in the State in which you reside; many State-sponsored programs are also open to non-residents.

Another significant benefit of the ABLE account is that the assets in the account aren’t subject to the means/resources test associated with the SSI, Medicaid and Supplemental Nutrition Assistance Program (SNAP), nor will they adversely affect any Housing & Urban Development (HUD) or Free Application for Federal Student Aid (FAFSA) application. Generally speaking, the means/resource test for SSI, Medicaid and SNAP don’t allow the applicant to have liquid assets in excess of $2,000, making eligibility for these programs extremely restrictive.

ABLE accounts are generally cheaper than creating or participating in a Supplemental Needs Trust or a Pooled Income Trust, and they typically provide more choice and control over the assets in the account. Conversely, an ABLE account’s relatively low annual contribution limit may make them less appealing than the Trust vehicles mentioned above.

Your financial advisor, trust/estate attorney or accountant can help you decide if an ABLE account is right for you. As long as you are willing to save more for a disabled family member or loved one, the Stephen Beck, Jr. Achieving a Better Life Experience Act has certainly made you more able.

To see this column in the RBJ, click here.