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All About ABLE Accounts

About ABLE Accounts

ABLE stands for Achieving a Better Life Experience. ABLE accounts are specifically designed to allow qualifying individuals with disabilities to save money without losing eligibility for government benefits. ABLE accounts provide an inexpensive and uncomplicated way to save funds for many individuals with disabilities.

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.

Benefits of ABLE Accounts

Savings without the loss of SSI and other benefits

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).  

Gifts made to the ABLE account are not included as income for SSI

Income (both earned and unearned) can adversely impact an individual’s 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 (and cannot exceed the annual contribution limit for the ABLE Account owner.

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 ($17,000 in 2023) and total account limits ($100,000) 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.

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 annual contribution limit ($17,000 in 2023) is not exceeded.

Who Qualifies for an ABLE Account?

Eligibility for an ABLE account requires the following:

Age of disability onset

  • Must have met the disability requirement before reaching the age of 26
  • If older than 26, must prove that disability occurred before 26th birthday

Disability

  • Uses Social Security definition of disability
    • If you receive SSI or SSDI and meet the age of onset requirement, you are qualified.
    • If you would qualify for SSI or SSDI based on disability (but do not meet other requirements for those programs)
  • Alternatively, “For the current tax year have filed a valid disability certification with the Secretary of the Treasury.”

Authorized to open the account

  • A beneficiary age 18 or older OR
  • An Authorized Legal Representative (ALR) for the beneficiary
    • If the beneficiary is older than 18, must be an individual who has been appointed as “Power of Attorney, Legal Guardian, or Conservator for the Beneficiary.
    • Can be a parent if the beneficiary is younger than 18

How Can ABLE Account Funds Be Spent?

Qualified Distribution Expenses (QDEs)

ABLE account funds can be spent on a wide variety of items, such as:

  • Education
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology and related services
  • Personal support services
  • Health
  • Prevention and wellness
  • Financial management and administrative services
  • Legal fees
  • Expenses for ABLE account oversight and monitoring
  • Funeral and burial
  • Basic living expenses

Expenses that fit into any of these categories are considered qualified disability expenses (QDEs). ABLE account distributions for QDEs are tax-free and do not affect SSI eligibility.

Getting money out of your ABLE account

Different state ABLE accounts provide different ways of withdrawing your ABLE funds for QDEs. Most plans offer withdrawals by check and electronic transfer to a bank. The Maryland ABLE account offers several methods for withdrawing funds, including electronic transfers to a bank account or for automatic bill pay, prepaid cards, and checks. Please note that some of these methods have fees associated with them, so you’ll want to determine which method is best for you.

ABLE distributions are not income

There are strict limits on the amount of income an individual can receive while receiving SSI. However, distributions from an ABLE account are not included as income. It doesn’t matter whether it is a qualified distribution or not; ABLE account distributions are NOT income for SSI purposes.

SSI considers ABLE account distributions a change in resources. The rules are quite specific and the type of expense is part of the determination of whether the distribution counts as an SSI resource.

How Much Money Can Go into an ABLE Account?

Annual limit

All ABLE accounts have an annual contribution limit ($17,000 in 2023). You may contribute less than this amount, but you may not contribute more in a single year. This amount is tied to federal gift tax exemption, and it does increase by $1,000 every few years.

Special additional annual contributions

In addition to the annual limit (currently $17,000), some ABLE account owners may make additional annual contributions under the ABLE to Work Act. The additional contributions are permitted when the ABLE account owner is employed and is not participating in an employer-sponsored retirement plan. That working individual may contribute an additional amount equal to the lesser of that person’s gross income that year or the federal poverty level (in 2023, $13,590 in Maryland and most other states). In other words, an individual with an ABLE account can save up to $13,590 in addition to the $17,000 annual contribution limit per year.

Total limit

ABLE accounts can exceed $100,000. For example, the account limit for Maryland ABLE plans is $500,000.

However, for purposes of SSI eligibility, only $100,000 of the funds in an ABLE account are excluded from resources. Amounts over $100,000 will count toward resources (which are capped at $2,000 for individuals) for SSI eligibility determinations.

How Do I Set Up an ABLE Account?

Follow this link to set up a Maryland ABLE account online. Alternatively, you may call 1-855-563-2253 or 1-844-888-2253 (TTY) for help setting up a Maryland ABLE account.

You’ll need some information:

  • Date of birth
  • Address
  • Social Security Number for the beneficiary and Authorized Legal Representative (if any).

If there is an ALR for a beneficiary over age 18, you’ll also need documentation of Power of Attorney, Legal Guardianship, or Conservatorship. If you want to transfer funds from a bank account electronically, you’ll want to have that bank information as well.

What Else Should I Know About ABLE Accounts?

Where can I set up an ABLE account?

Forty-four states, including Maryland, offer ABLE accounts, but you do not need to open an ABLE account in the state you live in. Seventeen states do require that you be a resident in order to set up an ABLE account under their program. However, the remaining 27 states, including Maryland, permit any qualified person to open an ABLE account regardless of residency.

How many ABLE accounts may I have?

No. Each qualified person may only have ONE ABLE account. If you have an ABLE account with one state and want to transfer it to another state, this is permitted, and the ABLE program staff should be able to help you do this.

Investment options available

ABLE accounts offer investment options so that your contributions will increase in value. This growth is tax-free. Different state programs offer different investment choices.

In Maryland, you may choose to leave the funds in a cash account or choose one of three investment options.

There are minimums and fees

ABLE accounts cost money to administer. Also, programs may have minimum requirements for setting up an account and for contributions. However, these minimums are usually quite low.

In Maryland, fees and minimums are as follows:

  • Initial contribution minimum: $25
  • Annual account fee: $35 (billed at $8.75 per quarter)
  • Minimum contribution (after initial): $10
  • Fees for investments (mutual funds): Annual fee of between 0.30% and 0.38% of fund value

Words of Warning About ABLE Accounts

Risk of asset forfeiture upon death – but not in Maryland

In Maryland, this is not an issue, “Under Maryland law, an agency or instrumentality of the State of Maryland may not seek payment from an ABLE account or its proceeds for any amount of medical assistance paid for the designated beneficiary unless required by federal law.” From the Does the Medicaid recapture of funds in an ABLE account as described in the Federal ABLE ACT known as “clawback” apply to Maryland ABLE accounts? Maryland ABLE web page.

If an ABLE account owner dies with money remaining in the ABLE account, the state may file a claim for repayment of medical assistance provided to the ABLE account owner. The state may only make claims for medical assistance provided after the ABLE account was created, and the state cannot claim more money than is in the account.

College Scholarship Service (CSS) Profile

While ABLE accounts are not considered assets for college financial aid through the Free Application for Federal Student Aid (FAFSA) form, the same rules do not apply to the College Scholarship Service (CSS) Profile, a private financial aid tool administered by the College Board that charges a fee to use. The CSS Profile counts ABLE accounts as assets. If you are considering applying to a school that requires the CSS Profile, it is advisable to call the Admissions Office to discuss this matter.

Using ABLE funds for unqualified purposes

If you use ABLE funds for expenses that are not qualified [more information at How Can ABLE Account Funds Be Spent?], those distributions will be taxable as income, and there is an additional 10% penalty for distributions not used for QDE. This can reduce the amount of money available, so it is useful to ensure that you spend your ABLE distributions on QDEs.

Contact the Bridges Helpdesk for More Information

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.

Updated as of August 28, 2023.

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