What is an ABLE Account and How Does it Work?

Often family members and close friends of people with disabilities want to contribute financial resources to help pay for their expenses. It’s no surprise that individuals with disabilities incur significant additional costs, but they cannot directly accept financial contributions without risking the loss of government benefits.

Many individuals with disabilities and their families rely on public assistance to help pay for their basic living expenses, health care, housing, and other supports. To qualify for these government benefits, they must pass certain tests that measure their available resources. Only those who report less than $2,000 in assets including savings and retirement accounts are generally eligible.

In other words, to qualify for public funds, the recipient must often be intentionally impoverished.

In 2014, the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act was passed to resolve this situation. This act created a tax-advantaged savings account (an ABLE account) to help people with disabilities, and their family, pay for various necessary expenses while protecting their benefit eligibility.

What are the basic ABLE account rules?

  • The disabled family member is the beneficiary and the account owner by default.
  • The income generated in the account is not taxable.
  • Contributions can be made by anyone such as the beneficiary, family, friends, or a Special Needs Trust.
  • Contributions must be after-tax dollars.
  • The contributions are not tax-deductible for federal tax purposes.
  • Illinois allows for a state income tax deduction for ABLE contributions up to $10,000 for an individual or $20,000 if filing jointly (As of 2020, due to the $15,000 annual limit on contributions, the state income tax deduction is limited to $15,000 per year even for a married couple).
  • When the beneficiary dies there is a “pay back” to the state of the entire value of the account in most cases for people with I/DD. 

Which costs may be paid from ABLE account funds?

  • normal expenses needed to raise a child with significant disabilities
  • living costs for a working-age adult with disabilities
  • housing (rent/mortgage/maintenance) and transportation
  • education
  • food
  • employment training and support
  • the expense for a trained personal assistant
  • specialized technology and health care not covered by insurance, Medicaid or Medicare
  • financial advice
  • other costs incurred to improve the beneficiary’s independence and quality of life

ABLE accounts are a useful tool that can allow an individual to save their own assets to be spent later, while not affecting their eligibility for programs such as SSI, Medicaid and other means-tested programs. For more information about which expenses are allowed to be paid from an ABLE account, see our prior blog post on this topic.

Is your family member eligible for an ABLE account?

The following people may establish an ABLE account:

  • Individuals with disabilities that began before they turned 26 years old who are also receiving benefits under SSI and/or SSDI. This group is automatically eligible to establish an ABLE account.
  • Those who are not receiving SSI and/or SSDI but still meet the age requirement above could still be eligible to open an ABLE account if they meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of disability certification from a licensed physician.

How much money can be in an ABLE account?

As of 2020, the yearly limit on contributions is $15,000, but working beneficiaries may contribute more. The account balance cannot exceed $100,000 in total without affecting their account owner’s SSI benefits.

Medicaid eligibility continues regardless of the ABLE account balance (unless there is more than the state 529 College Savings Plan limit (currently $450,000 in Illinois), however, if there is a balance remaining after the beneficiary’s death, the government requires a Medicaid Payback payment to refund most payments received by the beneficiary during their life.

Providing for your loved one with a disability can be complicated and confusing.  ABLE accounts are just one of the tools available.  To avoid losing important benefits, you should create a comprehensive plan with a special needs future planning expert.

Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at email@rubinlaw.com or call 866-TO-RUBIN.