Disabled California residents may now open savings accounts without jeopardizing means-based benefits, such as Supplemental Security Income (SSI).
SSI is a federal income supplement program that is funded by general tax revenues. Under that program, the aged, blind, and disabled with little or no income qualify for cash benefits to pay for housing, food, and clothing. However, to qualify for those benefits, recipients cannot own assets that exceed $2,000 in value for individuals and $3,000 in value for couples. There is also a federal income limit on monthly income, which is currently $783 per individual or $1,175 per couple.
The program is separate and distinct from Social Security Disability Insurance (SSDI), which provides benefits to disabled adults based on the nature and extent of a disability, rather than income. That program is funded through employee contributions required under the Federal Insurance Contributions Act (FICA).
Traditionally, the income limits set by SSI prevented recipients from maintaining savings accounts with significant balances. The Achieving a Better Life Experience (ABLE) Act of 2013 changes that. The Act authorizes individuals who became disabled prior to age 26 to establish tax-free ABLE savings accounts if they have been living with that disability for more than a year, expect it to last at least another year, and are not working and contributing to a 401 (k) or similar retirement plan. In addition, applicants must meet one of the following criteria:
- Be entitled to, or receiving, SSI because of their disability.
- Be entitled to, or receiving, Social Security Disability Income because of their disability.
- Have a condition listed on the Social Security Administration’s List of Compassionate Allowances Conditions, or,
- Be able to provide “self-certification” of his or her disability and diagnosis when opening the account.
Funds collected in an ABLE account are excluded from the countable asset limits used to determine eligibility for SSI.
Efforts are underway to expand eligibility for the program to age 46. The ABLE Age Adjustment Act is currently pending in the U.S. House of Representatives.
Under the original Act, annual contributions to ABLE accounts were limited to $15,000 a year and total savings of $100,000. In 2017, Congress passed the ABLE to Work Act, which increases that limit to $15,000 plus the lesser of the federal poverty line for a one-person household ($12,490) or the designated beneficiary’s compensation for the taxable year. The ABLE to Work Act also authorizes ABLE account beneficiaries to claim a nonrefundable tax credit for contributions made to the ABLE account.
In 2017, Congress also passed the ABLE Financial Planning Act. It permits ABLE beneficiaries to roll over 529 college savings accounts into an ABLE account up to the maximum annual contribution.
In California, ABLE accounts are available through CalABLE (https://calable.ca.gov/). Applicants open the account online and are asked to:
- Provide basic information, such as the beneficiary’s name, address, and birthdate. To facilitate the transfer of funds between accounts, bank account information will also be requested.
- After eligibility has been established, the account beneficiary or their representative will be asked to select from four investment or savings options, including a 100 percent Interest Bearing Account and conservative, moderate, and aggressive growth stocks and bond accounts.
- Provide a minimum initial contribution of $25.
Once the account is established, contributions can be transferred from the linked bank account up to the stated limits ($15,000 plus the lesser of $12,490 or the designated beneficiary’s compensation for the taxable year). An annual service fee of $37 will be deducted in monthly installments from each CalABLE Account. There may also be fees for some investment options and a state administrative fee. In addition, some administrative choices, such requesting paper statements, may also incur fees.
Anyone can make contributions, including Special Needs or Pooled Trusts. However, contributions must be made using after-tax dollars and are not deductible from federal or state taxes. ABLE account earnings are not subject to state or federal income tax as long as they are spent on Qualified Disability Expenses (QDE). QDEs are not limited to medical expenses. They include basic living expenses, tuition for preschool through post-secondary education, the purchase of and/or expenses for a primary residence, rent, property taxes, utilities, dental care, assistive technology, transportation, and housing.
Currently, 39 states and the District of Columbia sponsor ABLE accounts. Some states open their programs to individuals nationwide. This enables disabled savers to shop around and find a plan that meets their individual needs. For example, fees among plans, as well as guaranteed earnings, may vary among plans. Since those factors can affect the amount saved, they should be carefully considered. For more information all states’ plans, visit https://specialneedsanswers.com/able-accounts.
(Part Two: Is an ABLE Account Right for Every Disabled Person?)