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How an ABLE account can help with disability-related expenses

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When you have a disability or are supporting someone who has one, certain costs and challenges are a part of your financial reality. You may have wellness expenses or adaptive needs that affect your budget. It can be difficult to save for these necessary provisions while also balancing tax demands and assistance program qualifications.

The Achieving a Better Life Experience (ABLE) Act of 2014 tries to relieve some of that financial pressure. It allows you to have a tax-advantaged savings and investment account to plan for disability-related expenses without sacrificing government benefits.

What is an ABLE account?

Similar to 529 college savings plans, ABLE accounts—also called 529A plans—let you deposit money in a tax-advantaged savings and investment account and use it to pay for a person's qualified disability-related expenses.

The balance in your ABLE account, up to the first $100,000, isn't counted with the beneficiary's personal assets. This is considered a top benefit because federal programs like Medicaid, Supplemental Security Income (SSI) and housing assistance usually aren't available to an applicant if they have more than $2,000 in financial assets.

Who is eligible for an ABLE account?

Only people with a disability that meets Social Security's criteria and began before age 26 can be an ABLE account beneficiary.

You can open an account at any time. If you meet the age requirements and already receive SSI or Social Security Disability Income (SSDI), you're automatically eligible to open an account. If you're not currently receiving benefits, you must get a certification letter from a licensed medical professional to confirm your eligibility.

How much can you contribute to an ABLE account?

The maximum annual amount that can go into the account changes every year because it's tied to the IRS's annual gift tax exclusion amount. In 2023, the base limit is $17,000 and in 2024 the limit is $18,000.

If the ABLE account beneficiary has a job but not an employer-sponsored retirement plan, they can make additional contributions up to the amount of the beneficiary's gross salary or the poverty line amount for a single-person household, whichever is less.

What are the tax benefits of ABLE accounts?

The money in the account can grow and be withdrawn tax-free as long as it goes toward qualified disability expenses, which include:

  • Education and tutoring
  • Employment training and support
  • Housing
  • Transportation
  • Assistive technology
  • Personal support services
  • Health, prevention and wellness expenses
  • Legal, financial and administrative services

If you use money from the account for something other than qualifying expenses, you may owe federal income taxes on the investment earnings portion of the withdrawal but not on your contributions. You also may have to pay a 10% penalty on the earnings.

While contributions to the account aren't tax deductible for federal purposes, beneficiaries may be able to claim the Saver's Credit deduction for their contributions. Many states also offer state-level tax deductions or credits for contributions.

Gertie Munholland at cheerleading practice
Gertie Munholland.jpg
Gertie Munholland at cheerleading practice

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ABLE accounts vs. special needs trusts

While ABLE accounts have been around for about a decade, people and families have historically used special needs trusts to manage finances for disability-related purposes. It's possible to have just one or the other—or both. As you're setting up your financial strategy with these in mind, consider the key differences:

  • Spending. With an ABLE account, withdrawals are meant to be used for qualified expenses only.
  • Tax advantages. An ABLE plan provides you with a savings and investment account where qualified withdrawals are tax-free. Special needs trusts also have tax advantages, but they create a separate legal entity that has to file a yearly tax return that accounts for income and deductions.
  • Complexity and costs. ABLE accounts can be set up and managed relatively easily by the account owner and don't usually have excessive maintenance fees. Special needs trusts involve more planning and paperwork that often require an attorney's help to get going.

How to set up an ABLE account

While federal law allows for ABLE accounts, programs are administered at the state level. Unlike everyday savings accounts, you don't open an ABLE account with a bank. Instead, you start by selecting a state program to participate in. Not every state has one, but that's OK—many states allow non-residents into their programs.

The programs vary widely as to minimum contributions, maximum account balances, investment options and annual fees. As for account access, almost all programs will send you a prepaid card or debit card for you to make purchases.

It's a good idea to compare the options to see what works best for you. A beneficiary can have only one ABLE account at a time, but you can transfer to a different program if you choose.

Plan around your goals and needs

The creation of ABLE accounts was considered a significant milestone in offering people with disabilities and their families an opportunity to maximize their financial stability. It can be an important piece of an overall financial strategy that factors in your particular disability needs.

Consider meeting with a Thrivent financial advisor to talk about how ABLE accounts, special needs trusts, long-term care, disability insurance and more may fit into your long-term financial plan.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax services. Consult your attorney or tax professional.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.