ABLE accounts allow people with intellectual disabilities to open special savings accounts in which they can save money, and have the use of cash, without jeopardizing their government benefits. Massachusetts launched ABLE accounts through Fidelity a few years ago, and many of our clients are still learning about them and how they might work for their loved one.
Briefly, the rules are as follows. Each disabled person may have only one ABLE account, and a maximum of $15,000 per year can be deposited into it. In addition to the $15,000 per year allowed in deposits, ABLE account owners who work and earn income can contribute an additional $12,140 of their gross income into their ABLE account if they do not have an employer-sponsored retirement plan. So in those cases a person’s account can receive up to $27,140 per year.
Money in the account can then grow tax free, and the account value, up to $100,000, is not counted in determining eligibility for Supplemental Security Income (“SSI”) and Medicaid. In other words, a person can have up to $100,000 in an ABLE account and still be considered by the government to have less than $2000 in assets, thereby qualifying for SSI and MassHealth. (Actually a disabled person can be covered by MassHealth even if they have plenty of money; there is no assets limitation unless the person is using a MassHealth waiver program such as those used by group homes, but that is another story.) ABLE funds can be used for most anything, including education, health care, transportation, housing and other expenses.
Although the tax-free aspect is terrific, the real game changer is ABLE’s impact on SSI recipients. Ordinarily a person cannot receive SSI if he or she has more than $2,000. With ABLE, the person can have up to $100,000. In addition, ordinarily any cash given directly to someone who receives SSI reduces his or her monthly SSI payment dollar-for-dollar, after the first $20. But if the money comes from an ABLE account, it is not counted and this does not happen; rather, the disabled person receives cash (or money in a debit card) and the monthly SSI check remains the same. So a whole generation of disabled people who were not allowed to pay for their own groceries or haircuts unless they used their SSI money have been given a wonderful new freedom — CASH!
The main downside of an ABLE account is that there is a Medicaid pay-back requirement. This means that upon the death of the beneficiary, the state may require that any money remaining in the account reimburse it for whatever Medicaid (MassHealth in Massachusetts) paid for the beneficiary’s benefit, since the establishment of the account. So high users of Medicaid services may prefer to use the accounts to legally circumvent the SSI rules, but not use it as a tax-free saving device.
There are other benefits to ABLE. Learn more here.