The total annual contribution amount to an ABLE account will increase from the current amount of $18,000 to $19,000 in 2025. The reason for this increase is because the total annual contributions to an ABLE account are tied to the annual gift tax exclusion amount. As a result, this amount is subject to change on an annual basis. Contributions to the account may come from the disabled person himself/herself, a parent, a grandparent, from inheritances, a special needs trust, an estate, partnership, company, corporation, child support, etc. The total annual contribution cannot be exceeded regardless of the source.
What is an ABLE Account?
The Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act, a federal law enacted in December 2014, authorized each state to establish a program that offers tax-free savings and investment options to encourage individuals with a disability (or who are blind) and their families to save private funds to support health, independence, and quality of life. This federal law modified the Internal Revenue Code to provide for tax-advantaged savings accounts which did not impact such means-tested benefits such as SSI and state Medicaid. The ABLE act allowed for those with disabilities, for the first time, to be able to save and to have a supplemental source of income beyond those provided by such programs as SSI, Housing and Urban Development (HUD), Supplemental Nutrition Assistance Program (SNAP) and state-based medical assistance and waiver programs under Medicaid for supports and services. It provided a similar tool to those who would be saving for college under a 529 plan. It provided an opportunity for disabled persons to save money and invest in their future without compromising their ongoing access to vital public benefits where income and resource caps are strictly limited. Money contributed to an ABLE account is generally disregarded when determining eligibility for federal benefit programs, such as Supplemental Security Income (SSI) and Medicaid.
Who may have an ABLE account?
ABLE accounts are created by or for the benefit of a disabled individual. The individual with the disability (“Beneficiary”) must have had the onset of the disability prior to age 26. Due to changes in federal law enacted in January 2023, the age at which the onset of disability must have occurred will be raised to age 46 by the year 2026. The owner and Beneficiary of the ABLE account is the disabled person. The person who may create an ABLE account can be the individual, parents, guardians. A Beneficiary can only have one ABLE account at a time.
What may ABLE funds be spent on?
ABLE funds may be spent on “Qualified Disability Expenses.” Qualified Disability Expenses must relate to blindness or disability and cover such costs for maintaining or improving health, independence and quality of life. They include but are not limited to: health, education, housing, transportation, legal fees, financial management, employment training and support, assistive technology and personal support services, oversight and monitoring, funeral and burial, and other expenses approved by Treasury regulations. If the expense relates to the Beneficiary and helps maintain or improve their health, independence, or quality of life, it can be considered a Qualified Disability Expense.
Who may contribute to an ABLE account?
Contributions may come from anyone, including the disabled beneficiary, or any entity and are made with after-tax dollars. Earnings on the account may grow tax-free, based upon the various investment options offered under individual state-based programs. Funds from the ABLE account that are spent on Qualified Disability Expenses are considered tax-free distributions or withdrawals.
How much money can accrue in the Beneficiary’s ABLE account without impacting government benefits?
Based upon the federal law, if amounts in the ABLE account exceed $100,000, SSI benefits will be suspended during the time these excess resources are in the account. For Medicaid eligibility, the amount is much higher in most states at which point eligibility is in jeopardy. For Florida, the state account limit is $418,000.
