ABLEnow: Accounts for People with Disabilities

In 2005, my best friend Erika gave birth to a gorgeous baby boy she and her husband named Isaac.

Fifteen months later, Isaac was diagnosed with autism.

While the diagnosis offered the family some reassuring context for why Isaac reacted to the world the way he did, it was also a difficult time. It was clear that this baby’s future would be different from what the family had hoped for him.

Isaac is a teenager now. As a family friend, I have watched with pride as he and his parents have learned to navigate the neuro-typical world that isn’t always friendly to kids on the autism spectrum. But Isaac still has a number of challenges ahead of him, not the least of which is his financial future.

The Financial Catch-22 of Disability

It is unlikely that Isaac will live independently in adulthood. This means he will probably qualify for Supplemental Security Income and Medicaid.

But the eligibility rules for both SSI and Medicaid require beneficiaries to have less than $2,000 in cash savings, retirement funds, and other items of significant value. This requirement leaves people with disabilities vulnerable because they must maintain little-to-no assets to continue to receive their necessary benefits.

It can also discourage disabled people from working, for fear of losing their benefits if their income becomes too high.

The ABLE Act of 2014

Thankfully, in 2014, the Achieving a Better Life Experience (ABLE) Act authorized states to establish tax-advantaged savings programs for individuals with disabilities and their families. Erika was among many parents of special needs children who cheered this news. Finally, parents like her have a way to financially prepare for their special needs kids, too.

ABLE accounts are set up under the same tax code as 529 college savings accounts. They are authorized tax-advantaged accounts to help disabled people pay for qualified disability-related expenses, and like 529 accounts, they are offered by individual states.

ABLEnow is the account offering from the state of Virginia, and it provides a number of helpful options for individuals with disabilities. Here’s what you need to know about ABLE accounts in general and the ABLEnow account in particular:

ABLE Account Basics

Eligibility

Any disabled individual who was diagnosed or who experienced the onset of disability prior to age 26 may be an ABLE account beneficiary. Any such disabled individuals who receive either SSI or Social Security Disability Insurance (SSDI) are automatically eligible to open an ABLE account.

If you meet the age requirement but do not receive SSI or SSDI benefits, you can still open an account if you meet Social Security’s definition and criteria for significant functional limitation and also receive a certification letter from your doctor.

A beneficiary does not need to be under the age of 26 to open an ABLE account. Provided the onset of the disability occurred before age 26, you can open an account at any age.

State Administration and State Tax Benefits

Each state can offer its own ABLE account, just like with 529 accounts, but you are not required to open one in your home state. In fact, not every state has yet created their own ABLE program.

The benefit of opening a home-state account is the fact that some states offer a tax advantage to residents. Since not all states offer their own ABLE accounts, your state may give you a tax break even if you open a non-residential account from another state.

Contribution Limits

ABLE account contributions are limited to the annual IRS gift exclusion amount, which is set at $15,000 as of 2019.

In addition, ABLE account beneficiaries who are employed can make contributions beyond the $15,000 limit. That additional contribution can be as much as the beneficiaries total compensation for the year, or the poverty line for a single-person household–whichever is lower.

Federal Tax Advantages

ABLE accounts, unlike 401(k) accounts and traditional IRAs, do not allow you to deduct contributions from your federal taxes. However, the money in these accounts grows tax-free, and distributions for qualified expenses (more on that below) are also tax-free.

In addition, up to $2,000 of your contribution to an ABLE account can qualify you for the Saver’s Credit. This tax break will allow you to claim the credit for 50%, 20% or 10% of the first $2,000 you contribute to a retirement account or an ABLE account. How much (if any) of this Credit you can claim depends on your Adjusted Gross Income. (Read more about this tax law and other 2019 tax laws here.)

Qualified Expenses

Beneficiaries can take distributions from their ABLE account for the following qualified disability-related expenses:

  • Education
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology/services
  • Personal support services
  • Health
  • Prevention and wellness
  • Financial management and administrative services
  • Legal fees
  • Expenses for ABLE account oversight and monitoring
  • Basic living expenses
  • Funeral or burial expenses for the beneficiary

Distributions for non-qualified expenses are taxed at the beneficiary’s ordinary income tax rate and subject to a 10% penalty of the amount withdrawn.

ABLE Account Balance Limits

While each state’s ABLE account has a different limit on how large you can allow the account to grow, there is a hard federal limit on how much you can have in an ABLE account and still qualify for SSI. That limit is $100,000.

If a beneficiary’s ABLE account exceeds $100,000, SSI payments will be suspended until the account falls back below $100,000. This means it’s important to watch your ABLE account balance to ensure it does not affect the beneficiary’s continued eligibility.

This is why families with the financial ability to set up a special needs trust as well as an ABLE account should do so. Money in a special needs trust does not affect SSI eligibility. If you need to plan for lifelong care for a disabled individual, combining an ABLE account with a special needs trust will provide the best financial protection.

Medicaid Reimbursement

One important thing to note is that Medicaid may request reimbursement from an ABLE account after the death of its beneficiary. IRS rules stipulate that any funds remaining in the ABLE account, after payment of all outstanding qualified disability expenses, must be used to reimburse the state Medicaid benefits that the beneficiary received.

This will only come up if the state in question requests reimbursement, but it’s an important caveat to keep in mind.

ABLEnow: One Financial Solution

There are a number of ABLE account options across the country, but ABLEnow offers some great solutions for families planning for their special needs kids.

ABLEnow’s Banking and Investment Options

There is no minimum required to open an account, nor is there a minimum subsequent contribution amount. But the first $2,000 contributed will be held in the deposit account. Only once you have more than $2,000 may you allocate money to other investment options. The deposit account has a modest interest rate of 0.1% for balances up to $2,000, 0.2% for balances up to $10,000, all the way up to 0.45% for balances up to $50,000.

The deposit account is through PNC bank, and it comes with a free debit card, the ABLEnow card. This debit card allows beneficiaries to easily pay for qualified disability expenses. This makes it possible for individuals with disabilities to handle their own financial concerns without having to go through a middleman.

There are four portfolio options for investing: Aggressive Growth, Moderate Growth, Conservative Income, and Money Market. If you choose the Money Market investment account, you can also use that as a checking account.

The maximum balance you may have in any ABLE account, including ABLEnow, is $100,000 if you want to remain eligible for SSI benefits. However, if your SSI eligibility is not a concern, ABLEnow has a higher maximum of $500,000 for their accounts. You can contribute (and let your money grow) up to that half-million mark with an ABLEnow account.

Fees

ABLEnow charges a monthly service fee of $3.25 for all accounts. (Some ABLE accounts charge different fees depending on if you are a resident of the administrating state). ABLEnow waives this fee if you keep a daily balance greater than $10,000.

There is also an annual investment administrative fee of 0.15% and an annual program administration fee of 0.10%. ABLEnow assesses these fees quarterly on investment balances. If you keep your ABLEnow funds in the deposit account, you will not be assessed these fee.

Finally, each Investment Portfolio manager charges an asset management fee, which varies depending on which portfolio you choose. These asset-based fees are between 0.37% and 0.40%, depending on your investment selections

Tax Advantages

Virginia529, the country’s largest college savings plan, administers ABLEnow. Virginia residents enjoy an individual income tax deduction of up to $2,000 per account on contributions. In addition, Virginians over age 70 may deduct the full amount they contribute to ABLEnow from their state income taxes.

Even if you are not a resident of the Old Dominion, you may qualify for the Saver’s Credit for your first $2,000 contribution per year to an ABLEnow account. As of 2019, you can claim the Saver’s Credit if your AGI is at or below the following levels:

  • Married filing jointly: $63,000
  • Head of household: $47,250
  • Single filers: $31,500

Is ABLEnow the Right Account for You?

ABLEnow offers convenience for individuals with disabilities who want to handle their own financial decisions. For instance, my aunt who has cerebral palsy would be a perfect candidate for ABLEnow. An account with them would end the financial gatekeeping involved in allowing her to access funds from her trust. A free debit card that allows her to make her own purchases would save her a great deal of stress.

For kids like Isaac, who may not have the ability to make the best financial decisions for themselves, ABLEnow doesn’t have quite the same benefits. Since Isaac will likely need someone to play financial gatekeeper, ABLEnow may not be the best option when comparing its investments, fee structure, and tax benefits to other ABLE accounts.

I would encourage any family to take the time to compare ABLE account offerings to find the best solution for their needs.

The Bottom Line

That said, ABLEnow offers an excellent way for individuals with disabilities to handle their finances. Between the contribution options, the tax-free growth and distributions, the potential tax breaks, and the ease of accessing your ABLEnow funds, it is a great option for families unsure of how to support their special needs kids.

Sign up with ABLEnow.

Have you taken advantage of an ABLE account? Tell us about your experience in the comments!

About Emily Guy Birken

Emily Guy Birken is a former English teacher and respected personal finance blogger. She lives in Milwaukee, Wisconsin with her engineer husband and two high-energy little boys. She has written four books: The Five Years Before You Retire, Choose Your Retirement, Making Social Security Work For You, and End Financial Stress Now. Emily's thoughts on parenting and life in general are found at The SAHMnambulist.

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