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An ABLE account offers an individual with a disability a way to accumulate savings

ABLE Accounts: Financial Independence for Managing Money

The Achieving a Better Life Experience Act of 2014 (ABLE) accounts offer people with disabilities a great, tax-free way to accumulate money without jeopardizing their qualifications for Supplemental Security Income (SSI) and other means-tested programs. Withdrawals are tax-free as long as the money is used for “qualified disability expenses.”

For families who have dependents with disabilities, ABLE accounts provide a way to set aside savings money, tax-free, for their loved one. The arguments for starting and maintaining such funds are overwhelming, not least of which is the wide variety of things on which the money can be spent.

To build 529A ABLE accounts, beneficiaries (and other contributors) can put up to $17,000 total into these funds each year (in 2023). A person with a disability can also add his or her wages of up to $13,590 (2023) to an account in addition to the $17,000 (2023). Only those whose disabilities were diagnosed before turning 26 are eligible for an ABLE savings plan. (Note that this will change in 2026, when the threshold will raise to age 46.)

The total value of the account must remain below $100,000 for the beneficiary to qualify for government Supplemental Security Income (SSI) benefits. For non-SSI beneficiaries, the cap is $520,000. Also, the money must be spent only on items, services and activities that the Internal Revenue Service (IRS) deems qualified disability expenses (QDEs).

What Expenses Can ABLE Accounts Pay For?

Qualified Disability Expenses (QDEs)
The ABLE Act, passed by Congress in 2014, originally defined QDEs as:

  • education, housing, transportation
  • employment training and support
  • assistive technology and personal support services
  • health, prevention, and wellness
  • financial management and administrative services
  • legal fees
  • expenses for oversight and monitoring
  • funeral and burial expenses

The language of the Act concludes this list with: “and other expenses which are approved by the Secretary under regulations and consistent with the purposes of this section.”

Subsequent regulations and recent revisions by the Social Security Administration (SSA) and the IRS have expanded the list. To clarify the purpose of ABLE accounts, the Treasury Department and IRS issued an updated bulletin in 2020 to the effect that they view the “definition of qualified disability expenses as expansive”: “Whether a particular expense is a qualified disability depends on each designated beneficiary’s unique circumstances and whether the expense is for maintaining or improving the health, independence, or quality of life of the designated beneficiary.” As of 2022, for instance, the SSA has determined that food qualifies as a QDE, whether in the form of groceries or restaurant meals. ABLE money can also go toward vacations, if it maintains or improves the health, independence, or quality of life of the person living with a disability.

More Advice on ABLE Account Spending

The ABLE National Resource Center offers advice on what to spend ABLE funds on and when, stressing that an expenditure need not be disability related. Need a car? That’s eligible, as is a smartphone, as it is a basic living expense QDE. As noted above, education qualifies, as does anything needed for classes, such as books and a laptop.

It is always best to use ABLE funds on those things that are explicitly described as QDEs, while using money from other sources (i.e. First or Third-Party Supplemental Needs Trusts) for those things that might not qualify. The ABLE National Resource Center advises using public benefits for key expenditures, reserving ABLE funds for those things less likely to be covered by such things as Medicaid.

For example, money from an ABLE account can be used to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third-party, including a special needs trust, made the same expenditure. When it comes to its ISM rules, the Social Security Administration views money in an ABLE account as the SSI beneficiary’s own money, so there is no penalty when the SSI recipient uses funds from an ABLE account to pay for her housing expenses. For SSI recipients, being able to pay for food and other discretionary items with no ISM reduction represents a significant windfall.

ABLE Accounts and Supplemental Needs Trusts

At the same time, spending money without having to obtain a trustee’s permission translates into welcome financial independence for a person with a disability. One area that particularly vexes trustees of special needs trusts is how to get beneficiaries what they need without running afoul of the strict rules for public benefits like Supplemental Security Income (SSI).

Monitoring how money is being spent, collecting receipts, and disbursing funds safely are time-consuming processes for trustees. And while some beneficiaries are able to cope or assist, others are completely dependent on others when it comes to record-keeping and compliance.

The good news is that ABLE (Achieving a Better Life Experience) accounts are turning out to be a game-changer when it comes to paying for the beneficiary’s living expenses. ABLE accounts can help pay for disability treatment, assistive technology, education and training, housing, living expenses, health care, legal fees, and transportation.

Importance of Accurate Record Keeping for ABLE Accounts

Experts advise keeping records on what you have spent ABLE funds, should the IRS decide to include you on one of its random audits. Misuse of ABLE account funds could result in tax penalties and possible loss of public benefits.

State-Specific Program

​​​​​​​As of 2022, 46 states as well as the District of Columbia have active ABLE account programs in place. Information on the New York State ABLE Program can be found here. And information on the Connecticut ABLE Program can be found here.

But the rationale for starting and building an ABLE account is compelling — and keeping the account growing more so, as more items are included in allowable expenditures. Before you open an ABLE account for yourself or a family member with disabilities, or if you have questions on how the money should be spent, be sure to consult with the qualified Special Needs Attorneys at Kommer Bave & Ciccone LLP.

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