The first in a four-part series.
This month, the Free Bridges Helpdesk Transition Tip Tuesdays explores ABLE (Achieving a Better Life Experience) accounts so that you can decide if they would work for you and your needs. In this first part of the series, you will find out what ABLE accounts are and learn about some benefits of ABLE accounts.
April: ABLE Accounts—Are They for Me? Series
Part 3: How Much Can Go into an ABLE Account, and How Can I Set One Up? (April 20)
Part 4: Other Important Information about ABLE Accounts (April 27)
What are ABLE accounts?
ABLE stands for Achieving a Better Life Experience. ABLE accounts are specifically designed to allow qualifying individuals with disabilities save money without losing eligibility for government benefits. ABLE accounts provide an inexpensive and uncomplicated way to save funds for many individuals with disabilities. Under federal law, there is a maximum annual contribution allowed for any one ABLE account. In 2021, that maximum is $15,000.
Before ABLE accounts became available, “special needs trusts” (SNTs) were the primary means of saving for disability-related expenses while remaining eligible for programs like SSI. ABLE accounts are easier and less expensive to set up and maintain than SNTs, and they provide additional benefits in terms of management and use of funds for housing and food. However, SNTs are still useful, and a person may have both an ABLE account and an SNT. For more information, please reach out to the Free Bridges Transition Helpdesk.
Benefits of ABLE accounts
Savings without loss of SSI and other benefits
Earlier Transition Tips [“Income Limits for SSI Eligibility” and “Limitations on Resources for SSI Eligibility”] shared that there are very specific rules for SSI eligibility regarding both income and resources. Distributions from ABLE accounts are generally excluded for SSI income, and funds in ABLE accounts (up to $100,000) are generally excluded from SSI resource limits.
Tax-free earnings and distributions
ABLE accounts can be invested and earn interest, dividends, and capital gains on those investments. Typically, these funds would be subject to income taxes the year they occur. In ABLE accounts, those earnings are not taxed as they are earned; they grow tax-free. When you take money out of the ABLE account, there will be no tax as long as the distributions are used for Qualified Disability Expenses (QDE), which are discussed in the second installment of this series.
Gifts made to the ABLE account not included as income for SSI
Last week’s Transition Tip, “Income Limits for SSI Eligibility.” discussed the impact of income on SSI eligibility. Even gifts for birthdays, graduation, etc. can reduce or eliminate your monthly SSI payment in the month you receive them. However, gifts made directly to an ABLE account are not considered income. Thus, you might choose to ask that cash gifts be made directly to your ABLE account.
In fact, the Maryland ABLE program allows you to create a “gifting page” for electronic gifts and also provides an option for mail-in gifts to go to a specific ABLE account. Both annual contribution limits for ABLE accounts and total account limits for SSI eligibility still apply, but any person may make a contribution to an individual’s ABLE account, no matter what state the gift-giver lives in. However, the gift must be made directly to the ABLE account and be within the total annual limit for the ABLE account owner.
Contributions tax benefits in some states
As a bonus, many states provide some level of tax deduction for people contributing to ABLE accounts. In Maryland, each ABLE account contributor may deduct up to $2,500 from Maryland taxes (couples may deduct up to $5,000 in contributions) for each ABLE account. In other words, if one person contributes $2,500 to four different ABLE accounts, that person would be able to deduct $10,000 from income for Maryland taxes that year.
Note that state tax deductions may not be available if the contributor is not a resident of the state where the ABLE is held. Also, on the federal level, there are no tax deductions or tax credits available for contributions to ABLE accounts.
Not included on your FAFSA
ABLE account funds are not counted on your FAFSA (Free Application for Federal Student Aid). This is a significant benefit and can increase the chances that the ABLE account owner will qualify for financial aid.
In contrast, “529 plans,” popular savings plans for college not tied to disability ARE counted in determining eligibility for financial aid. If desired, 529 plans can be “rolled over” into an ABLE account, so long as the $15,000 annual contribution limit is not exceeded.
Next week, the Free Bridges Helpdesk will discuss “Who Qualifies for an ABLE Account, and How Can Funds Be Spent?” in the Tuesday Transition Tip. Don’t miss it.
Follow the Bridges Helpdesk Facebook page for more transition tips, and please contact the Free Helpdesk for Maryland Blind/Low Vision Transition Students, Families, and Educators anytime using:
- Our Accessible web form
- Email: Helpdesk@imagemd.org
- Text: Send to: (410) 305-9199
- Bridges Helpdesk Facebook page or Facebook Messenger
- Voice mail: Call (443) 320-4003, leave a voice mail message, and we will return your call
This unique project is being coordinated through The IMAGE Center of Maryland, a center for independent living in Towson, and it is funded by a grant from the Maryland Department of Education Division of Special Education/Early Intervention Services.