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Taylor Carty grew up with a checking and savings account, but after college, she needed a different way to save for medical school that wouldn’t jeopardize her health insurance.
Carty, who has cerebral palsy, qualifies for California’s Medicaid program, Medi-Cal, which pays for some medical expenses that her primary insurance doesn’t cover. But for someone to be eligible for Medicaid, they generally must have only $2,000 or less across most assets, including cash in bank accounts.
“I realized that if I wanted to keep my Medi-Cal but also plan for my future, especially since I wanted to attend medical school, I needed some tool. And that’s where ABLE accounts came in,” says Carty, who works remotely from Ballard, California, as a research affiliate at the University of California, Santa Barbara, and a research assistant at the Burton Blatt Institute at Syracuse University. She’s also an ambassador for the ABLE National Resource Center.
Created by a federal law in 2014, Achieving a Better Life Experience — ABLE — accounts provide a way for people with disabilities to save money without losing public benefits such as Medicaid. Here’s what to know about ABLE accounts.
What is an ABLE account?
An ABLE account is a type of savings and investment account that works like a 529 college savings plan: Contributions grow tax-free, and withdrawals must be for qualified expenses (more details below).
"ABLE accounts are not meant to replace any services you’re already receiving,” says Miranda Kennedy, director of the ABLE National Resource Center, which is managed by the nonprofit National Disability Institute. These accounts provide flexibility, autonomy and “more financial education and awareness,” Kennedy says.
ABLE accounts — also called 529A accounts — are provided by states, and more than 40 states and the District of Columbia offer them, according to the ABLE NRC website. Some programs are open to folks nationwide. States run the programs and work with financial institutions that manage the banking or investment services.
» Learn more about 3 tax breaks for parents of children with functional needs
Benefits of an ABLE account
1. You can save money, including wages, without losing public benefits. An ABLE account can have up to $15,000 in contributions per year, and an ABLE account holder can go over that limit with their own wages in some cases.
The first $100,000 in ABLE accounts doesn’t count toward asset limits that are part of eligibility for some public aid programs, such as Social Security Income; there’s no cap on the amount to be eligible for Medicaid. Benefits programs such as Medicaid and Supplemental Security Income generally require individual recipients to have no more than than $2,000 in assets, including money in non-ABLE bank accounts. These benefits can provide people with disabilities much-needed health care and monthly payments.
"If you can’t have more than $2,000 in your name, it can definitely contribute to a life of poverty or scarcity,” Kennedy says.
2. The owner and beneficiary of an ABLE account is the person with a disability, not their parent or guardian. To be eligible for the account, the onset of your disability must be before age 26. Unlike third-party special needs trusts, another financial tool for folks with disabilities, ABLE accounts are structured to provide autonomy (and are easier to set up than first-person special needs trusts).
“I’m pretty financially independent,” Carty says. “All my contributions are my own.”
3. The money in an ABLE account can be used for a wide range of things, such as education, housing, transportation, health, wellness and a dozen other categories. In fact, the main thing is that withdrawals go toward “maintaining or improving your health, independence, or quality of life,” as stated in IRS Publication 907.
For example, “horseback riding lessons can be calming for children with autism” and may count as a qualified withdrawal from an ABLE account, says Mary Morris, CEO of Virginia529, which administers the ABLEnow savings program. Other distributions may include transportation such as Uber or Lyft rides and assistive technology such as tablets or laptops.
4. Friends and family can contribute to an ABLE account. This may not seem like a big deal unless you’ve had to be careful about money in a loved one’s name, whether they have or will need certain public benefits.
"When [my son] graduated [from high school] this June, I was able to tell folks, ‘Just put [gift money] in his ABLE account,’” says Cheryl Walfall-Flagg, executive assistant at a nonprofit in North Carolina and an ABLE NRC ambassador. She and her husband live with and provide for their two sons and a nephew, including their 20-year-old son, Sean, who is on the autism spectrum.
How to open an ABLE account
One of the best places to start is the ABLE National Resource Center’s website. See if your state has an active program — most do — and look at what the program offers.
"Some states offer tax credits for funding 529A” — or ABLE — accounts if you’re a resident in that state, says Cynthia Haddad, certified financial planner, chartered special needs consultant and managing partner at the Affinia Financial Group based in Massachusetts.
But not every state’s ABLE account has the same fees or services, such as a debit card or the ability to invest funds. Fortunately, you can switch plans and you can choose an ABLE account that isn’t in your state, especially if the services work better for you.
» Learn more about the up-and-coming neobank Purple, which plans to offer ABLE accounts
ABLE accounts can provide peace of mind
Before Walfall-Flagg knew about ABLE accounts, she had a hard time saving for her son Sean in case he needed to stay eligible for future benefits. “I could have kept [funds] in my own personal savings account, [but] I couldn’t plan money for him," she says.
“I had a real concern and fear for his future because I didn’t know where he’d end up in terms of employment [or] where he’d end up in life,” Walfall-Flagg says. She opened his ABLE account online in 2017 when the North Carolina program launched.
Since then, that fear has gone away. "I look at his savings, I look at his bank statements, and I smile. He has that,” she says.