Brian Guay, a 25-year-old man with autism, wants to buy a farm and works three jobs to save up for his dream, reported CNBC. Before 2014, people like Guay would be at risk of losing their disability benefits, like Medicaid or Supplemental Security Income (SSI), if they had savings, retirement accounts, or other assets over $2,000.
But Guay is one of 45,000+ people who have an Able Account, a program passed by the Stephen Beck Jr. Achieving a Better Life Experience Act in 2014. Learn more about how an able account can help people with disabilities and their families.
What is an able account?
An Able Account is a “tax-advantaged savings accounts for individuals with disabilities and their families.” The account holder is the person with disabilities, known as the beneficiary, and each eligible person can only have one account. The beneficiary can open their own account or a parent, a guardian, or someone who has been designated by power of attorney can. Many states have developed their own able account programs, though people may be eligible for another state’s Able Account (depending on the state) even if their home state does not have a program.
“An Able Account is a way to accumulate excess funds over that $2,000 and not have it count as a resource, protect that eligibility, and allows [the person with disabilities] not to be destitute,” explains Janet Lowder, shareholder at Hickman & Lowder Co. LPA. A Cornell University report on disability statistics found that in 2017, 26.1% of people aged 21 to 64 with a disability were living below the poverty line.
How much can be in an able account?
With an Able Account, family, friends, and even the account beneficiary are able to contribute to the account up to a cumulative total of $15,000 a year. “It’s pretty easy to get going. You can start with a small contribution and put in Christmas and birthday money. If the family can get going with it, it can really build up,” says Dana Perry, shareholder at Chambliss, Bahner & Stophel, P.C. If the person with disabilities works, they can contribute more money to their account, exceeding the $15,000 maximum, to a certain amount, depending on the state if they do not participate in their employer’s retirement plans. States have different maximums for the entire account, ranging from $100,000 and $529,000.
The Able Account can be used for qualified expenses, which can differ by state but usually include education, health, housing, assistive technology, and much more. The accounts are not taxed as long as they are used for qualified expenses, says Lowder. Food, however, is not a qualified expense.
However, when the beneficiary passes away, the state may be able to recoup all or part of any Medicaid paid to the individual from the account.
How is it different from a special needs trust?
Before the establishment of able accounts, a special needs trust was an option for families to establish a trust for the person with disabilities so the beneficiary would not lose their benefits if their savings or other assets surpassed that $2,000 amount.
However, special needs trusts are complicated, and “you have to hire an attorney to do them” notes Perry. Many families, Perry says, are living paycheck to paycheck and do not have the ability to pay an attorney to set up a trust. Able accounts “are available for everybody,” she explains. Moreover, the trust does have to file a tax return, while able accounts do not. However, people can have both an able account and a trust.
Who is eligible for an able account?
To be eligible for an Able Account, the person with disabilities has to have had “an age of onset of disability before turning 26 years of age.” People over the age of 26 may open an able account but only if the onset of the disability was before 26. However, Perry notes, there are efforts to raise the age since it would expand eligibility to people who have the onset of disabilities later in life, such as their late 20s, 30s, 40s, and on.
Moreover, for people with disabilities with the onset of disability before 26 who are also receiving disability benefits are automatically eligible, according to the ABLE National Resource Center. People who are currently receiving SSI or other benefits but meet the age requirement may be eligible if “you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of disability certification from a licensed physician, an M.D. or D.O.”
When should you consult an attorney?
If you have a family member with a permanent disability, you may want to consider consulting an attorney. Perry notes that there is a lot of bad information or misinformation out there and that people should consult an attorney or a financial advisor with expertise in this area to learn about possible options. Lowder adds, “a good attorney can explain the pros and cons of different tools to provide for individual, then the person can make an informed decision."