September 27, 2023


Liz Yoder, CFP®

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Ways to Optimize An ABLE Account as an ABLE Account Beneficiary

Many articles have been written on how to use an ABLE account, but most are focused on the basic rules of contribution and distribution. They are very often also written with a parent or guardian in mind. Our perspective is for the ABLE Account beneficiaries themselves. We focus on how people with disabilities can use the account to get the most out of it while hopefully gaining more control of their savings and spending. Learn more about our special needs Certified Financial PlanningTM firm

Here are some DOs and DON’Ts while saving in your own ABLE account.

  1. Don’t feel obligated to your state’s plan.

There is no legal obligation to use your state’s ABLE Account program. There are still a few states that do not manage an ABLE account and those state residents must find another state’s program to use. However, there are many states where there is really no benefit to using the state’s program. While using the program of a different state won’t give you additional benefits of a tax deduction or other protections, it may be beneficial to how the plan was designed to offer an easy platform to open an account, fund, distribute and monitor an account. Ease of use is a highly underrated benefit of some programs. We encourage people to use the Ohio program at when their state does not offer special benefits. 

  1. Do use your state plan when the Medicaid payback provision is waived (and that matters to you).

The most important benefit of the ABLE system is the waiver of the Medicaid payback provision, when applicable. Some states, including California, Maryland, and Virginia, among others, have determined that their accounts are not accessible to pay back the Medicaid program for funding and services used during the beneficiary’s lifetime while using the account. The small caveat is they would allow recapture of funds if required by federal law. The Medicaid payback provision is one of the least understood and most voiced concerns of using an ABLE account and if your state has a waiver on the Medicaid payback provision for the beneficiary, the concern should be non-existent. Alternatively, if you don’t care who gets your money when you’re gone, it would not even matter. When it comes to the Medicaid payback, we want people to use their money in an ABLE account, during their lifetime, so don’t allow it to grow to the point where you can’t spend it down when you have to when you are nearing the expected end of your life on bucket list items and things that matter to you. 

  1. Do understand who the tax deduction benefits

Some states will offer a deduction of contributions up to $2,000 while others offer a full deduction of the contribution made. Your state law will determine how that works. While it is nice for some, the state tax deduction is not always a benefit for the beneficiaries who may not be filing taxes on their low income anyway. The highest impact of the state tax deduction is very often for the contributors who are gifting to a beneficiary. 

  1. To save into the ABLE when a retirement account isn’t an option

Some people with disabilities are eligible to contribute to retirement accounts to keep the benefits that are important to them. Others aren’t on asset-capped benefits programs and are just saving to move money into a savings account that is tax deductible going in and tax-free coming out. When you can’t use your retirement savings plan because of the restrictions of your Medicaid programming while working, you have the ability to get three things out of saving into an ABLE account.

#1 – An increased contribution limit. In 2023, people with earned income can contribute up to $13,590 of their earned wages into the ABLE account as a special contribution called the ABLE to Work contribution. This $13,000 is in addition to the standard $17,000 contribution limit. So, if you and your family contribute to your ABLE account and you earn money, always code your income as an ABLE to Work contribution to allow your family to add more money to your account.

#2 – A Savers Credit – If you are not eligible to use a 410k savings plan, and ABLE account may be the only option for saving money. The IRS allows a tax credit for your personal ABLE contributions on top of your credits for low income. We encourage contributors to file taxes, even when they don’t owe any taxes, to make sure they are taking advantage of this extra cash back from the IRS for saving in the way they are able.

  1. Consider saving anyway when you have gotten your employer match at your retirement account

In some states, disabled workers can maintain Medicaid benefits while contributing to a 401k. If your income is low due to the benefits you need to stay on to have the support you need, you are likely not receiving a huge benefit for saving into the 401k for the tax deferral. Money set aside in a 401k is also intended to be there until your retirement, and you may be penalized for taking money out before the age of 59 and a half. If you anticipate more immediate or shorter-term needs, after receiving your match from work, consider investing more heavily in your ABLE account. This allows you to have more access to your savings. Depending on your life situation, this may not be needed. However, remember that it does grow tax-free forever while you still have your disability. 

  1. Do be aware of the tax benefits of an ABLE account’s growth

An ABLE account, when used for Qualified Disability Expenses, grows tax-free like a Roth account or Health Savings Account. But you can put more into an ABLE every year than you can put into most Roth accounts and HSAs and is not dependent on you working or having a particular health insurance plan. When eligible, this long-term growth on your savings could save you more money than it would if it were in a tax-deferred or taxable account.

  1. Don’t misread the maximum account balance

In the 9 years ABLEs have existed, we have not seen one that has gotten close to the maximum account balance. Anyone who monitors their balance will not run afoul of these rules. However, the maximum account balance is not $100,000, as many believe it to be. The maximum balance depends on the plan, but typically 5 times that number. $100k references the amount that can be in the ABLE for SSI payments to be made. If someone is no longer on SSI payments and still protecting Medicaid, the account can continue to grow without concern. People who have a childhood disability often get off of SSI payments when their parents file for Social Security or earlier when they become eligible for their own SSDI payments. 

  1. Do use the cash you save for emergencies, large purchases and long-term planning

This account is more accessible to you than a retirement account might be. Use it when needed to prevent unnecessary credit card creep, when larger expenses pop up, or for long-term plans like vehicles, education, and housing. If this is your only saving option, consider what you will need later and treat it like a retirement account.

  1. Do work with a specialized advisor to support healthy spending levels

If you have an ABLE account that has been funded to provide you with more financial stability, it may be time to review if you are spending too much or too little money on things that you care about. A financial planner can review the projected growth of investments within the account and other accounts like a Special Needs Trust, or retirement accounts, to determine a healthy spending strategy. They will also be able to encourage you to manage the tax implications of having money in one account over another and how to coordinate your assets. Reach out to the advisors of Dependent Financial Planning if you want to get started on your review today.

We understand the unique financial challenges that families with special needs dependent children face. Contact our special needs Certified Financial PlannersTM for help.

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