Using ABLE Accounts to Supplement Needs

The Achieving a Better Life Experience (ABLE) Act allows tax-advantaged savings accounts to help people diagnosed with significant disabilities before age 26 save and pay for disability-related expenses. 

Contributions may be made by the beneficiary, friends or family members. However, the total annual contribution cannot exceed the amount established for the gift tax exemption ($16,000 in 2022). Contributions aren’t federally tax-deductible. 

ABLE accounts function similar to 529 college savings plans. Once deposited, funds in ABLE accounts grow tax-free. Distributions from ABLE accounts are tax-free if used for qualifying disability expenses, including:

• Housing and basic living expenses
• Education
• Transportation
• Health
• Employment training and support
• Assistive technology
• Personal support services.

In addition to the annual contribution limit of $16,000 (2022), a designated beneficiary, who is employed, may contribute his or her compensation up to the federal poverty level for a one-person household (but not if his or her employer contributed to a 401(a) defined contribution plan, 403(b) annuity contract, or 457(b) eligible deferred compensation plan). In 2021, the federal poverty level was $13,590.  That means, up to $29,590 could be deposited for 2022 and grow tax-free. As of 2022, New York allows a maximum account balance of $520,000.

ABLE accounts aren’t considered “available resources” for Medicaid purposes. Further, amounts up to $100,000 are ignored for purposes of Supplemental Security Income (SSI). This is critically important since SSI normally disqualifies applicants with assets in excess of $2,000. ABLE accounts allow disabled beneficiaries to maintain substantial resources without jeopardizing their benefits. 

While Special Needs Trusts (SNTs), sometimes called Supplemental Needs Trusts, offer many of the same advantages, they do not address all circumstances faced by disabled beneficiaries and their families.  However, there is no need to choose between the two.  ABLE accounts can be used in conjunction with SNTs to offer individuals the ability to remain qualified for government programs, while having financial resources for expenses not covered by those programs.

If you or someone you know wishes to discuss either ABLE accounts or Special Needs Trusts, Call Our Office Today to Schedule an Appointment.