ABLE accounts: A tax-free way for parents of disabled kids to save for the future

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For parents of children with disabilities, tax-free Achieving a Better Life Experience (ABLE) accounts can be an invaluable tool for helping those kids live to the fullest later in life, according to money expert Clark Howard.

In this article, we’ll explain how ABLE accounts work and how best to take advantage of them.

ABLE accounts explained

Signed into law in December 2014, the ABLE Act offers a way for the parents of disabled children to save money for education and other expenses just like they would with a 529 plan.

Similar to 529 plans, ABLE accounts are administered by the states and you can participate in most other states’ plans regardless of where you live. You may, however, get a tax benefit for participating in your state’s plan.

What does an ABLE plan allow you to do? 

Participating in an ABLE plan allows you to save money tax-free and spend it tax-free on your child’s qualified disability-related expenses, including school tuition, housing, transportation, job training and more.

“ABLE plans are usually of most interest to people who are older parents and worry about where money will come from and who will provide care for your child when you’re not with us anymore,” money expert Clark Howard says.

How do I know if my child qualifies?

To qualify for participation, your child needs to have a diagnosable disability before age 26 that is expected to last 12 consecutive months or longer. Your child must also be receiving Supplemental Security Income (SSI) and/or Social Security Disability (SSDI).

What are the annual contribution limits? 

Annual contribution limits for 2019 are set at $15,000, which is the amount of the annual gift tax exclusion that lets you give money to anyone tax-free for any reason.

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Setting the bar at $15,000 for the year effectively removes the barriers that existed before. Previously, a disabled person risked losing out on government programs if their monthly income exceeded $700 or they had savings and other assets valued at more than $2,000.

Know the impact of the new tax law on ABLE accounts

Under the new tax law, a gainfully employed ABLE recipient can now stash away an additional $12,140 of their gross income into their ABLE account in the absence of any employer-sponsored retirement plan.

Furthermore, an ABLE recipient who works may also qualify for the Saver’s Credit and receive up to $2,000 as a reward for saving money!

Are there any state caps?

Certain states will cap lifetime ABLE contributions at $300,000, according to SavingforCollege.com. But there’s an earlier mile marker to take note of before you reach that goal: When your child’s ABLE account balance is $100,000, he or she can longer receive SSI benefits.

If you’ve already saved money for your child in a traditional 529 plan prior to a disability diagnosis, you can roll that money into an ABLE account if your child has a disability that manifests after they’re well into their school years — a later autism diagnosis, for example.

State plan links for ABLE accounts

Here’s a list of states with ABLE plans, courtesy of SavingforCollege.com:

State Plan Name Residency Requirement State Tax Deduction Total Asset-Based Expense Ratio Debit or Purchasing Card?
Alabama Enable Savings Plan Alabama NO NO 0.50%-0.56% YES
Alaska Alaska ABLE Plan NO NO 0.34%-0.38% NO
Arizona AZ ABLE YES NO 0.19%-0.34% YES
California CalABLE NO NO 0.00%-0.54% NO
Colorado Colorado ABLE NO NO 0.34%-0.37% YES
Delaware DEPENDABLE NO NO 0.34%-0.37% YES
District of Columbia DC ABLE NO NO 0.34%-0.37% YES
Florida ABLE United YES NO 0.035%-0.29% NO
Georgia Georgia STABLE YES NO 0.19%-0.34% YES
Illinois Illinois ABLE NO NO 0.34%-0.38% NO
Indiana INvestABLE Indiana NO NO 0.34%-0.37% YES
Iowa IAble Plan NO YES 0.34%-0.38% NO
Kansas Kansas ABLE Savings Plan NO NO 0.34%-0.38% NO
Kentucky STABLE Kentucky YES NO 0.19%-0.60% YES
Louisiana LA ABLE YES NO 0.07%-0.14% NO
Maryland Maryland ABLE NO YES 0.30%-0.3781% YES
Massachusetts Attainable Savings Plan NO NO 0.57%-0.93% YES
Michigan MiABLE NO YES 0.50%-0.78% YES
Minnesota Minnesota ABLE Plan NO NO 0.34%-0.38% NO
Missouri MO ABLE YES YES 0.19%-0.34% YES
Montana Montana ABLE NO YES 0.34%-0.37% YES
Nebraska Enable Savings Plan NO YES 0.50%-0.56% YES
Nevada ABLE Nevada NO NO 0.34%-0.38% YES
New Hampshire STABLE New Hampshire YES N/A 0.19%-0.34% YES
New Mexico ABLE New Mexico YES NO 0.19%-0.34% YES
New York NY ABLE YES NO 0.40% YES
North Carolina NC ABLE NO NO 0.34%-0.38% YES
Ohio Stable Account NO YES 0.19%-0.60% YES
Oklahoma Oklahoma STABLE YES NO 0.19%-0.34% YES
Oregon Oregon ABLE Savings Plan YES YES 0.30%-0.38% YES
Oregon ABLE for ALL Savings Plan NO YES 0.30%-0.38% YES
Pennsylvania PA ABLE NO NO 0.34%-0.38% YES
Rhode Island RI’s ABLE NO NO 0.34%-0.38% NO
South Carolina SC ABLE Savings Program YES YES 0.19%-0.34% YES
Tennessee ABLE TN NO NO 0.35%-0.62% NO
Texas Texas ABLE YES N/A 0.25%-0.65% NO
Vermont Vermont ABLE NO NO 0.19%-0.60% YES
Virginia ABLEAmerica NO YES 0.40%-0.85% YES
Virginia ABLEnow NO YES 0.37%-0.40% YES
Washington Washington State ABLE Savings Plan YES NO 0.30%-0.3702% YES
West Virginia WV ABLE YES NO 0.19%-0.34% YES
Wyoming WY ABLE YES N/A 0.19%-0.34% YES

Obviously, there are a lot of variables at play when it comes to ABLE accounts, so if you have further questions you can get more information from the Social Security Administration here.

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Listen to Clark Howard talk about ABLE accounts in this episode of the The Clark Howard Show podcast:

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