ABLE accounts for the disabled: FAQs
Thursday, December 03, 2020
One in 4 U.S. adults have some form of disability, according to the Centers for Disease Control and Prevention. Further, 1 in 3 disabled people aged 18-44 had an unmet healthcare need due to cost in the past year, and 1 in 4 aged 45-64 did not have a routine check-up. These are just a few of the many needs people with disabilities are unable to meet.
To help disabled people save and pay for disability-related expenses, the U.S. Congress created the Achieving a Better Life Experience (ABLE) Act — which was signed into law on Dec. 19, 2014.
What is the ABLE Act?
The ABLE Act amends Section 529A of the Internal Revenue Code, to enable states to establish savings programs for eligible individuals with disabilities. Currently, most states offer ABLE programs.
ABLE accounts generally allow disabled people to save money without jeopardizing their eligibility for federally funded programs like Medicaid and Supplemental Security Income (SSI).
What expenses do ABLE funds cover?
The money can be used to pay for qualified disability expenses, as defined by the IRS, including:
- Prevention and wellness
- Personal support services
- Assistive technology
- Employment training and support
- Recreation activities that increase quality of life
- Funeral and burial
- Basic living
- Legal fees
Participants can save and/or invest their ABLE account funds. Typically, funds can be accessed in multiple ways, such as by using a prepaid debit card, making online withdrawals, or requesting a paper check.
What are the tax benefits of ABLE accounts?
Contributions made to an ABLE account are not deductible for federal tax purposes. On the upside, distributions (including investment earnings) are tax free so long as the money withdrawn from the account is used for qualified disability expenses. And in some states, ABLE contributions are deductible for state income tax purposes.
What are the eligibility requirements?
You must have a qualifying disability that began before you turned age 26. So long as the disability started before your 26th birthday, you can open an ABLE account at any time.
Who can make contributions?
Any person (as defined by the IRS) can contribute to an ABLE account, including:
- Individuals, such as the account holder, family members, and friends
What are the contribution limits?
Under IRS rules, annual contributions to an ABLE account cannot exceed the value of the annual gift tax exemption, which is $15,000 for 2020 and 2021.
Disabled employees who do not participate in their employer’s retirement savings plan can contribute an additional amount to their ABLE account. This additional amount cannot be more than the federal poverty level for a household of one.
Many states have established an ABLE account lifetime limit, which is the maximum amount that can go into an ABLE account over the course of a lifetime. Per the ABLE National Resource Center (NRC), “State ABLE limits range from $235,000 to $529,000.”
Also, SSI recipients with ABLE accounts should know that their SSI payments will be suspended if their ABLE account balance exceeds the SSI resource limit.
Can employers offer ABLE accounts?
Yes. In fact, disability advocates highly encourage employers to offer ABLE accounts. According to the ABLE NRC’s website, “An ABLE account can be used to support employees’ ability and increase their productivity, which results in a diverse, valued and productive workforce.”
Employers interested in providing ABLE accounts as an employee benefit can start by reviewing the ABLE NRC’s Employer Toolkit.
What does the IRS’ new final rule for ABLE accounts mean?
In October 2020, the IRS released final regulations containing updated guidance on ABLE accounts. The regulations cover (among other things):
- Qualified ABLE programs, including residency requirement and multi-state programs
- Establishment of ABLE accounts, including eligibility, signature authority, and disability certification
- Limit on the number of ABLE accounts an eligible person can have
- ABLE contributions, distributions, and rollovers from qualified tuition plans
- Qualified disability expenses
- Gift and generation-skipping transfer tax consequences of ABLE contributions
- Recordkeeping and reporting requirements
Observers say that although the final regulations are well-meaning and detailed, they will require further clarification.
How can individuals open an ABLE account?
Eligible individuals can open an ABLE account through the state ABLE program website. Additionally, the ABLE NRC offers a full roadmap to enrollment.
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