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In December 2014, the Achieving a Better Life Experience Act (ABLE) became law. The law allows a disabled individual to create an account to save money for the individual’s disability expenses. The account will not affect the individual’s Social Security or Medicaid benefits.
Eligibility for ABLE Accounts
An individual qualifies to have an ABLE account if he or she is blind or has a disability that occurred before the individual reached age 26. To meet this requirement, the individual must have been receiving Social Security Disability or Supplemental Security Income benefits or self-certify that he or she meets the disability requirement. The self-certification can be signed by the individual or his or her parent/guardian. The certification must state that the individual has a written diagnosis from a licensed physician that includes information about the medical determination of blindness or disability that is expected to last for at least 12 months, that the blindness or disability occurred before age 26. A copy of the physician’s statement must be available on request.
If the individual meets this disability criteria, he or she can create an ABLE account.
ABLE Account Characteristics and Benefits
In Ohio, ABLE accounts are known as STABLE accounts (State Treasury Achieving a Better Life Experience). The application and creation process is entirely online through the Treasurer of Ohio’s website.
ABLE accounts are similar to normal bank accounts, but they are investment accounts. ABLE accounts are 529A accounts and have similar characteristics to 529 college savings accounts. The individual can choose how the funds in the account are invested, but he or she retains the full ability to withdraw and spend from the account.
Any person can contribute to an individual’s ABLE account, but the total contributions to an ABLE account cannot exceed $15,000 per year. (See a slight exception below created by the 2017 Tax Cuts and Jobs Act.)
Earnings in the ABLE account are tax-free if the account is used for qualified expenses (see more information below). If the funds are used for a non-qualified expense, the individual may realize income tax liability.
In addition to growing the account tax-free, the individual can maintain government benefits, including SSI and Medicaid benefits. An ABLE account will never affect an individual’s Medicaid benefits, but if the account balance exceeds $100,000, an individual’s SSI benefits may be suspended. For SSI purposes, the first $100,000 in the account is ignored, and any amount over $100,000 is counted as a resource. Therefore, if your total countable resources exceed the $2,000 asset limit for SSI, your SSI benefits will be suspended – not terminated. Once your resources drop below the $2,000 limit, your SSI benefits can resume.
Additionally, if funds are withdrawn from the ABLE account and not spent in the same month, SSI benefits could be affected. It is best to withdraw the funds as needed and spend the funds within the same calendar month.
Qualified Disability Expenses
Funds in an ABLE account can be expended for “qualified disability expenses.” The definition of qualified disability expenses is very broad. It includes expenses incurred during a time when you were an eligible individual, expenses that relate to your disability, and expenses that help you maintain or improve your health, independence or quality of life. Funds can be used for housing, education, transportation, health and wellness, etc.
In Ohio, STABLE accounts have a STABLE card associated. The STABLE card is a prepaid debit card (funded by the STABLE account) that can be used by the individual or a legal representative. A parent or legal guardian can allow the disabled individual to have freedom of spending but can control the amount available to the individual. STABLE cards can be used anywhere that accepts MasterCard.
Additional Benefits with the Tax Cuts and Jobs Act of 2017
In addition to the initial benefits of an ABLE account, the Tax Cuts and Jobs Act of 2017 created additional benefits for the individual.
Although total account contributions in a calendar year are capped at $15,000, the individual may contribute funds in excess of $15,000 from his or her own income. The contributions from the individual’s income cannot exceed the Federal Poverty Level for a household of one for the calendar year ($12,140 in 2018).
Individuals who contribute to their own ABLE account may also receive a $2,000 tax credit for contributing to the plan.
Finally, the Tax Cuts and Jobs Act of 2017 allows individuals to roll funds from a 529 college savings account to a 529A ABLE account, tax-free. However, the annual contribution limit still applies to the rollover, so an individual may need to roll funds over a period of several years.
The ABLE Act was a huge step for disabled individuals and their families. Parents can plan for their disabled minor children and put funds aside for their benefit without hindering the children’s eligibility for government benefits. Additionally, disabled adults with an ABLE account can maintain a quality of life and pay for items with flexibility.
For more information about STABLE accounts, visit the Treasurer of Ohio’s website.