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.
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|
|District of Columbia||DC ABLE||NO||NO||0.34%-0.37%||YES|
|Kansas||Kansas ABLE Savings Plan||NO||NO||0.34%-0.38%||NO|
|Massachusetts||Attainable Savings Plan||NO||NO||0.57%-0.93%||YES|
|Minnesota||Minnesota ABLE Plan||NO||NO||0.34%-0.38%||NO|
|Nebraska||Enable Savings Plan||NO||YES||0.50%-0.56%||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|
|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|
|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|
|Washington||Washington State ABLE Savings Plan||YES||NO||0.30%-0.3702%||YES|
|West Virginia||WV ABLE||YES||NO||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.
Listen to Clark Howard talk about ABLE accounts in this episode of the The Clark Howard Show podcast: