ABLE Accounts: A Great Deal for the Disabled and Their Families
Ernie Neve, CPA
January 12, 2021
Sixty-one million adults and over 12.6 million children in the United States have some type of disability.
If you have a disabled or blind child or other family member, or are disabled or blind yourself, you should know about ABLE accounts. These tax-advantaged accounts can be a real game changer for the disabled.
Ordinarily, a disabled person who receives government benefits can only have $2,000 in cash or other countable assets. This can make it impossible for disabled people to save money for emergencies, to buy a house or car, or take a vacation.
This is where ABLE accounts come in. Contributions to ABLE accounts up to certain levels are not counted for purposes of means-tested programs for the blind and disabled. Disabled people can have up to $100,000 in an ABLE account without losing Social Security disability benefits.
Contributions to ABLE accounts are not deductible for federal taxes, but the money in the account grows tax-free. Withdrawals are also tax-free if made for a variety of living and disability-related expenses.
Up to $15,000 in total can be contributed to an ABLE account each year. Contributions can come from the disabled beneficiary, from family, and from friends. Disabled people who work can put in an additional amount limited to the lesser of their compensation or $12,490 in 2021.
A total amount of $300,000 to $500,000 can be deposited into an ABLE account, depending on the state.
There is only one real drawback to ABLE accounts: they are only available for people who became blind or disabled before reaching age 26. This eliminates the majority of the disabled.
ABLE accounts are run by the states. Forty-two states and the District of Columbia have them. You don’t have to set up an account in the state where you live, and it can pay to shop around.
By the way, if you have a special needs trust, you can keep it. An ABLE account can be set up in addition to a special needs trust.