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The benefits of an ABLE account for your child with special needs
Discover the savings potential of these tax-advantaged accounts.
To secure the best future possible for your child with special needs, you’ll likely want to explore the savings avenues available to you and your family. ABLE accounts offer tools to protect your child with private savings without jeopardizing government benefits.
What are ABLE accounts — and how can it help me?
Born from the Achieving a Better Life Experience Act of 2014 — better known as the ABLE Act, an ABLE account is a state-run savings program that can help those with special needs save for the future.
The beneficiary owns the account, and anybody interested in supporting the beneficiary can deposit post-tax dollars whenever they wish. Funds from the account can be used toward any qualified disability expense — generally, any service that improves the beneficiary’s health, independence or quality of life, including:
- Housing
- Transportation
- Assistive devices and technology
- Health care
- Education, tutoring and employment training
- Legal and administrative fees
Funds in an ABLE account are exempt from the $2,000 Supplemental Security Income (SSI), housing aid and Medicaid asset limit, as well as exempt from federal income tax.
Where can I sign up for an ABLE account?
ABLE accounts are available in 34 states. But thanks to 2015 update to the ABLE Act, you can apply for an account in any state that offers them, regardless of your state of residence.
Not all states that offer the ABLE program accept out-of-state applicants, but many do — including Colorado, Illinois, Montana, Ohio and Virginia.
How do I know if my child is eligible for an ABLE account?
To be eligible for an ABLE account, your child must:
- Have experienced the onset of your disability before age 26.
- Meet Social Security’s definition of what qualifies as a significant functional limitation.
- Provide a letter of certification from a licensed physician.
If your child receives SSI or Social Security Disability Insurance (SSDI) and meets the age criteria, they are eligible to register for an ABLE account.
Does my child’s disability qualify?
To be eligible for an ABLE account, your child must meet Social Security’s definition of what qualifies as a significant functional limitation.
According to the SSA, a significant functional limitation is any condition severe enough to substantially interfere with daily living.
For adults, this is measured as the inability to regularly engage in work or financially support themselves. For a child, this is measured as the inability to engage in age-appropriate activities.
If your child is not already receiving SSI or SSDI benefits, they could still qualify for an ABLE account if a letter of certification is submitted by your family physician confirming that they have a physical, cognitive or behavioral disability that prevents them from engaging in age-appropriate activities.
What tax benefits come with an ABLE account?
ABLE accounts allow loved ones to set aside up to $15,000 a year in post-tax contributions for the benefit of the account owner. That cap is expected to adjust in the future to account for inflation.
All money in the account remains exempt from taxation as long as it’s used for qualified disability expenses. Withdrawals for any other purpose are subject to pay some form of income tax and a 10% tax penalty.
The total amount over time that can be contributed to an ABLE account is subject to individual state law, but most states set this limit at $300,000 or more.
Note that contributions to an ABLE account are not tax-deductible for the purposes of federal taxes, though some states allow for state tax deductions on contributions.
Will having an ABLE account jeopardize my SSI benefits?
It could. The first $100,000 deposited into an ABLE account is exempt from the SSI $2,000 individual income limit. However, if your ABLE account exceeds a balance of $100,000, your SSI benefits could be suspended until the account balance falls back below this limit.
What states have ABLE accounts?
ABLE accounts are state-run programs, so availability, fees and contribution limits vary by state. For example, some states let anyone in the US open an account, while others only allow residents who live in that state to participate. Use the table to view ABLE limits by state.
| Available to out-of-state residents? | State income tax deduction for contributions per year? | Minimum contribution required to open account | Account limit | Annual fees | |
|---|---|---|---|---|---|
| Alabama | Yes | No | $50 | $350,000 | $45 |
| Alaska | Yes | No | $25 | $400,000 | $40 |
| Arizona | No | No | $50 | $431,000 | $42 |
| Colorado | Yes | No | $25 | $350,000 | $45 |
| District of Columbia | Yes | No | $25 | $500,000 | $60 |
| Florida | No | No | $0 | $418,000 | $0 |
| Georgia | No | No | $50 | $462,000 | $42 |
| Illinois | Yes | No | $25 | $350,000 | $45 |
| Indiana | Yes | No | $25 | $450,000 | $45 |
| Iowa | Yes | Yes – up to $3,128 of contributions | $25 | $420,000 | $45 |
| Kansas | Yes | No | $25 | $365,000 | $45 for out-of-state account holders; $40 for in-state account holders |
| Kentucky | No | No | $50 | $462,000 | $42 |
| Louisiana | No | No | $10 | $500,000 | $0 |
| Maryland | Yes | Yes — up to $2,500 of contributions | $25 | $350,000 | $35 |
| Massachusetts | Yes | No | $50 | $400,000 | $30 |
| Michigan | Yes | Yes — $5,000 for single filers | $25 | $500,000 | $45 |
| Minnesota | Yes | No | $25 | $350,000 | $45 for out-of-state account holders; $40 for in-state account holders |
| Mississippi | Yes | Yes — 100% of contributions | $25 | $235,000 | $60 for paper statement delivery; $45 for e-statements |
| Missouri | No | Yes — $8,000 for single filers and $16,000 for joint filers | $50 | $445,000 | $42 |
| Montana | Yes | Yes, $3,000 | $25 | $400,000 | $45 |
| Nebraska | Yes | Yes, $5,000 for single filers; $10,000 for joint filers | $50 | $360,000 | $45 |
| Nevada | Yes | No | $25 | $370,000 | $45 |
| New Hampshire | No | No | $50 | $462,000 | $42 for out-of-state account holders; $30 for in-state account holders |
| New Mexico | No | No | $50 | $462,000 | $42 |
| New York | No | No | $25 | $100,000 | $45 |
| North Carolina | Yes | No | $25 | $420,000 | $45 |
| Ohio | Yes | Yes — up to $2,000 of contributions | $50 | $462,000 | $42 for out- of-state account holders; $30 for in-state |
| Oregon | Yes | Yes, but limited to beneficiaries up to age 21 — $2,330 for single filers and $4,660 for joint filers | $0 | $310,000 | $45 for Oregon ABLE Savings Plan; $35 for ABLE for ALL Savings Plan |
| Pennsylvania | Yes | No | $25 | $511,758 | $45 |
| Rhode Island | Yes | No | $25 | $395,000 | $40 |
| South Carolina | No | Yes — 100% of contributions | $50 | $426,000 | $42 |
| Tennessee | No | No | $25 | $350,000 | $0 |
| Vermont | No | No | $50 | $462,000 | $42 |
| Virginia | Yes | Yes — up to $2,000 of contributions | $0 | $500,000 | $39 — but waived if the account’s average daily balance is $10,000 |
| Washington | Yes | No | $0 | $86,000 | $35 |
| West Virginia | No | No | $50 | $462,000 | $42 |
| Wyoming | No | No | $50 | $462,000 | $42 |
The ABLE savings account program is signed into law and in development in Arkansas, California, Connecticut, Delaware, Hawaii, Maine, New Jersey, North Dakota, Oklahoma, South Dakota, Texas, Utah, and Wisconsin.
Idaho doesn’t offer ABLE savings account programs as of June 2020.
How do I choose which ABLE account program is right for me?
Consider these factors when shopping around for ABLE accounts:
- Eligibility requirements. To qualify for an ABLE account, an individual must have developed their disability before age 26. They’re not required to have SSI to qualify, but they may have to get a disability certification from a doctor if they don’t receive SSI.
- Programs in your state. Some state governments only allow in-state residents to open an ABLE account, while others let anyone in the US participate in their plan. If your state doesn’t offer an ABLE account, use the chart in this article to find a state that allows out-of-state residents to participate.
- Annual fees. Some ABLE accounts are more expensive than others. Compare fees for annual or quarterly account maintenance, rollovers and investments to see which plan keeps more money in your pocket.
- Account limits. Maximum account balances vary by state, but they’re usually anywhere from $86,000 to $500,000. If you’re not trying to stick to the $100,000 maximum account balance needed for SSI eligibility, then take a second look at maximum account balances to find a plan that fits your needs.
- Tax advantages. Several states offer tax deductions and credits for contributing to an ABLE account. Explore the deductions and credits in your state to see what you may qualify for.
What are the pros and cons of ABLE accounts?
ABLE accounts give a person with disabilities more control over their account than a special needs trust. This can be a good thing if they want to access funds on their own to pay bills and cover expenses. But there’s also a higher chance that the individual could be taken advantage of if they’re not careful. Here are some other pros and cons:
Pros
- Can be set up by a person with disabilities. Unlike some special needs trusts, an individual with disabilities can set this account up and manage it themselves instead of having to rely on a parent or loved one to do it for them.
- Tax advantages. Money in your ABLE account grows tax-free and contributions aren’t subject to the gift tax.
- Easy to set up. Most ABLE accounts can be set up at your local financial institution, making them widely accessible.
Cons
- Eligibility restrictions. An individual must have developed their disability before age 26 to qualify for an ABLE account.
- Contribution limits. You can contribute up to $15,000 a year in an ABLE account. While states set their own maximum account balance limits, your account can’t hold more than $100,000 if you want to qualify for SSI.
- Unused funds will pass through probate. If there are funds left in an ABLE account after a beneficiary dies, Medicaid gets reimbursed for any benefits it paid out. Then, the leftover money passes through probate before it’s dispersed to the deceased’s heirs.
Bottom line
While ABLE accounts are not yet available in all states, many states that do offer these savings accounts accept out-of-state residents. Most ABLE accounts require a $25 to $50 opening deposit and come with an annual fee of $35 to $60.
A strong draw to state-run ABLE accounts is the associated tax breaks. But be aware of the annual and lifetime limits that govern contributions made to these accounts.
Frequently asked questions
These are some of the most frequently asked questions about this topic. If you still have questions, please get in touch with us.
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