ABLE Savings Accounts Allow SSI and Medicaid Recipients to Save Money

ABLE bank accounts allow individuals who were disabled before age 26 to save money without losing eligibility for SSI disability or Medicaid.

ABLE savings accounts are special bank accounts for individuals with disabilities where the funds don't count as assets or resources for the purpose of SSI disability benefits or Medicaid. (ABLE stands for Achieving a Better Life Experience Act, a federal law passed in 2014.)

Historically, individuals receiving SSI or Medicaid benefits weren't able to save over $2,000 because of asset limits, preventing them from planning for emergencies or saving for a down payment on a car or house. And parents of children and young adults with disabilities weren't able to give them funds to help them plan for the future.

ABLE savings accounts now allow parents and relatives of individuals with life-long disabilities (or the individuals themselves) to contribute funds to the account, without causing the individuals to lose eligibility for government benefits. In addition, eligible SSI recipients will no longer need to quickly spend the lump sum of back payments they receive when they are first approved for SSI (which can be as high as $15,000 or more); they can instead put the money into an ABLE savings account for future use.

The Nuts and Bolts of ABLE Accounts

Anyone is allowed to contribute to an ABLE account, such as the person with a disability or his or her relatives or friends, but only $15,000 (in 2020) from all sources is allowed to be put into an ABLE account per year. And an individual can only have one ABLE bank account. If the ABLE account beneficiary works and earns income, however, he or she can contribute an additional amount to their ABLE account that does not count toward the $15,000 limit (and that may be eligible for the federal Saver's Credit). The limit for the additional amount is the same as the federal poverty level for one person, or $12,760 in 2020.

Any income earned from investments in the account is not subject to income tax, and the account can grow until it reaches $100,000, after which point individuals lose their eligibility for SSI. (The maximum amount for Medicaid is much higher, but varies by state; generally, states use the same limit as they do for their 529 college savings plans.)

Unlike with special needs trusts, there is no trustee who manages the account; the beneficiary of the account (the disabled person) is the owner of the account and is able to spend the money as he or she wishes. (In the case of a minor or incapacitated person, a parent or person with power of attorney can be given signature authority over the account.)

Who Qualifies to Use an ABLE Account?

To qualify to use an ABLE account, an individual must have a disabling condition that began before age 26. This requirement can be met by being entitled to disability benefits through SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) or by having a written diagnosis from a physician indicating that individual has a physical or mental impairment that:

  • is medically provable
  • results in severe limitations in functioning, and
  • is expected to last at least a year or result in death.

Individuals over 26 can have an ABLE account as long as their disability began before they turned 26.

Federal Rules Regarding Deposits and Distributions

Most of the rules regarding ABLE accounts come from federal law. Federal rules about the money put in and taken out of an ABLE account include the following:

  • Deposits into ABLE accounts are not federally tax deductible. (Some states do provide tax deductions, including Michigan and Oregon.)
  • Distributions from an ABLE account can be used only for "qualified disability-related expenses (QDE)," such as:
    • health care, including assistive technology and personal support services (such as home health aides)
    • housing
    • transportation
    • employment training
    • education expenses
    • financial management, and
    • basic living expenses.
  • Withdrawals made for nonqualified purposes will be taxed as income, with a 10% penalty tax.
  • Distributions from an ABLE account related to food or housing do not count as income in the month they are distributed and, unlike distributions from special needs trusts or free housing, they are not treated as in-kind support and maintenance (ISM), which would decrease monthly SSI benefits.
  • Distributions from ABLE accounts related to housing do not count as resources for SSI and Medicaid purposes unless they are held (instead of spent on housing) into the month after which they're withdrawn.
  • Distributions from ABLE accounts related to non-housing expenses do not count as resources for SSI and Medicaid purposes in the month they are withdrawn from the account, and, even if unspent, will not be counted as resources as long as the ABLE account is maintained and the money for non-housing needs is kept separate from other funds.
  • When a person with a disability dies, in most states, any funds remaining in an ABLE account will be used to reimburse Medicaid for any services the person received from that program, after payments are made for funeral and burial expenses. California, Oregon, and Pennsylvania have shielded their ABLE accounts from Medicaid repayment.

ABLE Programs Are Run by the States

While most of the rules regarding ABLE accounts are laid out in federal law, ABLE accounts are only available in states that have passed laws and regulations to make them available. So far only about half of the states have ABLE programs up and running. ABLE account enrollment is open in California, New York, Florida, Illinois, Pennsylvania, Texas, and about 25 other states. Each state sets its own annual fees and investment options.

Some states have decided not to provide ABLE accounts, but if your state doesn't have an ABLE program, you may be able to open an account in another state. Only some states have opened their programs to residents of other states, including Illinois, Ohio, and Pennsylvania. In fact, about a dozen states have partnered with Ohio, the first state to launch an ABLE program, for their residents to use Ohio's program at in-state rates. Florida and Vermont are among the states that do not allow out-of-state residents to participate in their ABLE account programs.

For information on your state's ABLE program, as well as a link to your state's ABLE program so that you can open an account, see Nolo's section on state ABLE account programs.

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