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04 August 2016

How New ABLE Savings Accounts Can Help People With Special Needs

For the first time in history, people living with disabilities will be able to open ABLE accounts – special tax-advantaged saving accounts to store money, including inheritances and legal settlements, without threatening their government benefits.

The new program was first announced in 2014, when Congress passed the Achieving A Better Life Experience (ABLE) Act. But it’s only come to fruition now that Ohio has become the first state to offer an actual enrollment program.

Ohio Makes History With First ABLE Accounts

Through the state’s STABLE program, people with special needs can open an account and begin depositing money, with an initial contribution of just $50. This year, the maximum yearly contribution has been set at $14,000, but that will likely change on an annual basis to track inflation. After that, each account holder will be able to select their own investment options and begin earning interest right away.

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For people living in Ohio, any earnings made on a STABLE account will be free of both federal and state income taxes – as long as those earnings are used to pay for qualified disability expenses, like:

  • health care
  • housing
  • education and employment training
  • transportation
  • assistive technologies
  • personal support

and the money withdrawn is used relatively quickly. Ohio’s program is open to people with disabilities no matter where in the country they live, although the tax-free earnings promise may not apply to people living outside of the state.

ABLE Is Coming To More Than 40 States

But Ohio won’t be alone for long. Over 40 states have passed laws that sponsor ABLE programs, according to the Wall Street Journal, and Nebraska, Florida and Tennessee have already opened their programs up to applicants. Virginia is set to roll out its own program next.

Each program will be different, governed by its own state regulations and requirements. Florida’s ABLE system, for example, opened for enrollment on July 1, 2016, but accounts are limited to state residents. That won’t be true of other state programs, though; most are expected to allow people with disabilities from any state to open their own accounts, depending on which state’s terms suit best.

The ABLE Act was an idea that started around a kitchen table in Northern Virginia by five dedicated parents from the Down syndrome community. Today is a historical achievement as now ABLE accounts are a reality for all individuals with disabilities in America thanks to the hard work of so many dedicated advocates from across the US.

Sara Hart Weir, president of the National Down Syndrome Society

As with any new governmental programs, there will be some kinks to work out in the early months. But some states are already banding together to lower costs for consumers. In April 2016, nine states including Rhode Island, Pennsylvania, Minnesota and Kansas announced the first ABLE consortium.

By pooling the resources of their state’s account holders, the consortium’s members hope to increase market share and offer higher quality investment options, while lowering costs for individuals enrolled in any one of the nine state-administrated programs. This kind of teamwork will bring ABLE accounts into alignment with similarly-structured college savings programs, which can rely on hundreds of thousands of participants.

Regardless of state-by-state differences, ABLE accounts will be designed to hold up to $100,000 in savings without jeopardizing a person’s eligibility for programs like Supplemental Security Income, SNAP and Medicaid, which are means-tested. Of course, you can always put more money into your ABLE account, but balances higher than $100,000 may threaten benefits eligibility. That’s why most financial advisers believe ABLE accounts should be used to supplement special needs trusts, rather than replace them entirely.

Who Is Eligible To Open An ABLE Account?

The ABLE Act, which is federal law, limits eligibility to people who developed qualifying disabilities before their 26th birthday.

The Act uses the Social Security program’s definition and criteria for significant functional limitations to determine eligibility. It automatically covers people who meet the age of onset requirement and are currently receiving either Supplemental Security Income or Social Security Disability Insurance benefits. For people who aren’t receiving those benefits, but meet the Social Security requirements for disability, a letter of certification from a licensed physician will serve to prove eligibility.

Saving Money – Without Threatening Government Benefits

For many families, figuring out how to save money, while remaining eligible for benefits, is a difficult challenge. Most of the benefits programs on which people with disabilities rely require applicants to meet strict resource tests. The ABLE National Resource Center puts the situation more bluntly: “to remain eligible for these public benefits, an individual must remain poor.” Critics have long argued that this scheme is a public policy failure, one that fails to recognize the significant living costs and extra expenses most people with disabilities must bear.

In a recent post, we discussed one potential solution, a specific type of trust fund designed to supplement the benefits paid out by government programs for daily living expenses. These “special needs trusts” can be an excellent option for many people with disabilities, including children who are expected to receive a legal settlement or jury verdict in personal injury or product liability lawsuits.

ABLE accounts may prove to be another effective strategy for families of children with special needs, allowing for successful investment opportunities while preserving government benefits. Disability advocates are excited about these new programs, but many have urged reasonable caution before jumping in. We suggest that families and people with special needs speak to an experienced financial adviser, so you can figure out how to use an ABLE account to meet your specific goals.

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