This summer, states have begun rolling out a new type of investment account that is tailored to help families take care of children and adults with special needs.

The ABLE account is a tax-advantaged vehicle for individuals with disabilities that will allow families to save without jeopardizing government benefits such as Supplemental Security Income and Medicaid. 

Congress passed legislation back in 2014 that allowed states to create these accounts that share some of the same characteristics as the 529 college savings plans.

The First ABLE Accounts

The first four states to launch ABLE accounts are Ohio, Tennessee, Nebraska, and Florida.  More states are expected to roll out ABLE accounts later this year.

Just like 529 college accounts, an individual doesn’t have to live in the state that offers an ABLE account.  Only one account, however, can be opened for a special needs individual.  Multiple people though can donate to whatever account is established.

Planning for the needs of a disabled individual is complicated and the ABLE account is not designed to eliminate the need for a supplemental special needs trust.  The ABLE accounts, which will provide more choice and control for account owners, are expected to be a supplement to a trust for many parents.

To be the beneficiary of an ABLE account, an individual must be receiving Social Security disability payments or benefits from a state program supported by Social Security for a disability or blindness that started before age 26.  Someone can also be eligible if a physician certifies that the individual is blind or disabled due to an impairment that can be traced back before the age of 26.

There is a limit to how much can be contributed to an ABLE account each year and to its monetary value.  A total of $14,000 can be deposited into an ABLE account yearly and the maximum value of the account can’t exceed $100,000.

There are many eligible uses for the money in an ABLE account including housing, transportation, job training, education, health care expenses, personal support services and assistive devices.

Any money remaining in the account upon the death of the beneficiary must first be used to repay the state for Medicaid help received since the account was opened.

Questions to Ask

When comparing ABLE accounts, here are some questions to ask:

  • What investment options are offered?

  • What are the track records of these investment options?

  • What are the fees associated with this account?

  • What proof of eligibility is necessary to open an account?

  • Are there restrictions on how often funds can be withdrawn?

  • Is there a minimum contribution to open an account? 

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