An Overview of ABLE Accounts, How to Qualify, and How They’re Taxed - The Accounting Guys
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An Overview of ABLE Accounts, How to Qualify, and How They’re Taxed

04 Jan An Overview of ABLE Accounts, How to Qualify, and How They’re Taxed

ABLE accounts are specialty savings accounts for individuals with disabilities and their family members. These accounts were introduced in 2014, as a result of the ABLE Act, and are designed to help individuals with disabilities and their families establish a savings to help with the expenses associated with caring for a disabled individuals, while continuing to qualify for public benefits.

Many public benefits like SSI, Medicaid, and SNAP, require enrollees to report less than $2,000 in savings. However, caring for an individual with disabilities comes with high costs, and ABLE accounts allow those with disabilities or their family members to establish a savings account that will not disqualify them for public benefits. Here are some things you should know about ABLE accounts.

Who Qualifies for an ABLE Account?

To qualify for an ABLE account, an individual must have significant disabilities with an onset date prior to their 26th birthday. Note that this does not mean the individual must be under the age of 26; their disability must simply have been present prior to them turning 26 years old.

If you meet the above requirement and are already receiving benefits from SSI or SSDI, you are automatically eligible for an ABLE account. If you’re not receiving SSI or SSDI, but you meet the requirement for age of onset disability, you may still be eligible for an ABLE account. To qualify, you will need to meet the Social Security’s criteria of significant functional limitations, and receive a letter from a licensed physician that states your (or your dependent’s) disability meets those criteria.

How Much Can Be Contributed to an ABLE Account?

Contributions to an ABLE account can be made by any individual, including the beneficiary (the account holder), family members, and friends. The maximum annual contribution to an ABLE account was increased to $15,000 in 2018, regardless of who makes the contributions.

The total limit of funds in the account will be based on the state whose ABLE program you are enrolled in, and is usually the same as their limit for education-related 529 savings accounts. However, if you receive benefits from SSI, there may be further limitations on your ABLE account. If the balance in your ABLE account is under $100,000, you can continue to be exempt from the SSI’s individual resource limit, and continue receiving SSI cash benefits.

However, if the total in the account exceeds $100,000, the SSI cash benefit will be suspended until the balance falls back below $100,000. Note, however, that the balance in your ABLE account will have no effect on your eligibility for medical assistance through Medicaid.

What Expenses Can ABLE Accounts Cover?

ABLE accounts are intended to assist in the expenses of caring for an individual with disabilities, and the funds within them can only be used for qualifying expenses. However, there are many types of expenses that qualify, including:

  • Education
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology
  • Personal support services
  • Health care expenses
  • Other expenses to help improve health, independence, or quality of life

 

How Are They Taxed?

Contributions to an ABLE account must be made with post-tax dollars. For federal tax purposes, contributions to these accounts (whether you are contributing to your own account or a friend’s) are not tax deductible; however, some states may allow you to deduct these contributions on your state tax return.

ABLE account beneficiaries also have the option to invest the funds held within the account. If you choose to do this, any income earned on your ABLE account will not be taxed.

If you have an ABLE account, have contributed to one, or hope to qualify for one, speak to one of our certified public accountants in Provo. We’ll help you to better understand how such an account will impact your taxes and help you to establish a smart strategy for investing in your ABLE account.

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