ABLE accounts are designed to provide a special savings method for those who became disabled before age 26. They are similar to 529 Savings Accounts used to save money for college. There are an estimated seven million individuals in the United States eligible to open an ABLE account.
They are offered by the state. States can contract with other states to use their accounts instead of setting up their own program. Individuals do not have to be a resident of a particular state to use that state's ABLE account system.
Benefits of ABLE Accounts
Families of disabled individuals note that it is hard to save money for future care without going over certain accumulated fund limits imposed by government programs, such as Medicaid or Supplemental Security Income. The first $100,000 in an account does not count toward the $2,000 savings restriction that you are limited to having under these programs.
The tax advantage of these is that savings can grow tax-free. The beneficiary of the account, the disabled individual, can also use this money tax-free as well. In addition, some states also allow tax deductions for funds put into the accounts.
The funds can be used for a variety of expenses, including education, housing, and healthcare costs. As long as the expense is related to the disability in some way, then it will likely be considered a qualified disability expense. It can also be used to help the individual with a disability to gain greater independence.
There are other savings options for disabled individuals, such as a pooled or special needs trust. However, these financial tools can be complicated and expensive to maintain.
ABLE Account Limitations
If another person is contributing to the account, it is important to note that the limitations regarding gifts and the gift tax still apply. An individual contributor can provide up to $14,000 without worrying about the gift tax. For ABLE accounts, the total account contribution from any source cannot be over $14,000, even if more than one person is contributing.
The account is also limited by the individual state that runs the program. However, these limits are relatively high—some are more than $300,000 per plan. Each person is only permitted to have one account.
They can be an excellent way for individuals with disabilities and their families to save for the future. Find out more about these accounts and their tax benefits here.