ABLE Account Doubts
Are ABLE accounts a smart investment for disabled people? If you had asked me even a week ago, I would have said “Yes”…. now, I’m saying “Well, often Yes (and sometimes No)”.
What happened?
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Welcome to Disability Drumbeat #10
Fellow Disability Changemakers –
As I mentioned in the last issue – DD #9 – I’m working on a “Disability Financial Navigator” course to help disabled people and through “Fuel it Forward”, help other disability organizations and creators. You can find this issue and more in the archive of previous issues. This analysis of ABLE accounts came out of that project.
If you find this newsletter useful, please share it with someone who will benefit from it. I hope you’ll reply, point out my errors, ask questions, make suggestions, or just write me, I want to hear from you.
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My bottom line is:
“Much Better is Possible” for children with disabilities and the disabled adults that they will become…
and I hope you want to help make that change happen.
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We are all in this together.
Steve
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Drumbeat Letters
MW commented
…that I wasn’t very clear in my Fuel it Forward article. First, there aren’t any products or services or subscriptions YET. I’m working o a waiting list for Disability Financial Navigator. Here is my Take 2 at explaining how I think this will work (let me know if it makes sense or is appealing!):
- First, you select your preferred Disability Group – say you also like my favorite newsletter Disability Debrief.
- Second, If you invite someone else to join Disability Almanac and they wind up purchasing a course (such as the deluxe version of Disability Financial Navigator for $199- I can dream), it could have a bonus incentive for your favorite group (Disability Debrief) of $50 for the first year. Then, as the product (might) have an annual subscription of $50 per year… then as long as they renew and you keep Disability Debrief as your favored group, they would get $25 per year.
- If you invited two people to do the same… lucky Disability Debrief … they would get $100 the first year and $50 per year that everything continues.
- Fuel It Forward.
Does that make sense? Thoughts?
MM wrote
…first, she mentioned New Disabled South that also has a 501c4 New Disabled South Rising. I didn’t know about the 501c4, but New Disabled South has been doing excellent work. If I was building an organization around advocacy, I’d focus on the 501c4 (like the League of Women Voters) and have a 501c3 if necessary (I think they have an LWV Educational Foundation). She didn’t mention, but I will :) … that she is working on All Things Disability Equity.
….and
Thank You to TC for sharing a recent newsletter with their email list!
If you have a disability group or anyone else (or anything else) that you’d like me to share – send me an email!
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ABLE’s Devilish Details ( Trigger Warning – MATH and Government Benefits Arcana)
One of the reasons that ABLE accounts were created was to give “ordinary” disabled people access to the “disability-benefit-protecting” features that wealthier disabled people and their families could access using a Special Needs Trust… and they wound up adding in the bonus investing feature*.
Goal 1 – Investing
Personally, I focused on the investing side of things… because my son is still young and we are sufficiently privileged to be able to put long-term investment/savings funds aside for him.
This is not true for everyone.
Last week, while working on a financial planning presentation for parents with disabled children, I looked at in more detail at ABLE Accounts in general and the California CalABLE account in particular.
And I had missed something.
CalABLE has an annual fee for the account of $30 (currently quarterly at $7.50 every three months) plus it takes a fraction of your earnings – much like many other investment accounts.
My first advice to the parents was “Make sure you are taking care of your own finances first”… just like those oxygen masks on airplanes – you can’t help someone else if you haven’t taken care of yourself.
Next, I took a hard look as to when and how the ABLE account was going to work…
And I smacked into that Annual $30 Fee like a brick wall.
If you are using the ABLE Account for investment… you have to cover that fee first… which means that you’ve got to get a decent amount of money into the account before your account will be “eaten up” by the annual fees.
Obviously, $100 is in trouble: $100-$30 = $60 – you’re gone in 4 years.
$1000 is looking better, but to cover the fees, you need to make at least $30 which means a 3% return… so some of the conservative funds are probably not going to cover their fees (this is hard to see at the CalABLE website :( … the closest I can get is looking at page 81 and 82 of the detailed plan book – which provides cost information, not estimated returns – BOO!)
My GUESS is that you probably need at least $5000 for the program to work as an investment tool….but, “Your Mileage May Vary A Lot”… and “THIS IS NOT INVESTMENT ADVICE” … and all that!
…so that is the low-end.
Now, let’s talk about problems on the high end.
The top-end problem kicks in at $100,000 for Supplemental Security Income (SSI) and Medicaid (and other federal benefit programs).
The ABLE Account shelters your eligibility to SSI up to $100,000.. but after that, you will lose your eligibility.
The ABLE Account maximum varies by state between $250,000 and $500,000… which means you probably won’t be able to replace the SSI income with income from the ABLE Account… (compare selected factors for different states including annual fees, but not maximums)
So, though the account can grow larger, it is unlikely to be of benefit to many eligible users (let me know if I’m missing something).
So, unless the $100,00 federal benefits cap is increased… the “investment window” for ABLE accounts looks like it is between $5000 and $100000 (and you probably need to be careful on the top end to ensure continued eligibility).
Even more important is to get rid of (or lower) the annual fees. This stops disabled individuals and their families from starting small. I’ll do some research to see if there are programs without an annual fee (some are also more complicated to use :( ).
Goal 2 – Benefits Eligibility Protection (BEP?)
The other function of an ABLE account is to shelter funds from counting towards income. Here the annual fee may matter (less). If a disabled person gets a gift, help with rent or even a small inheritance, that income can adversely affect eligibility for SSI and other US benefits.
Asset limits are pretty severe – $2000 for an individual and $3000 for a couple. It is one of the reasons that some disabled people can’t afford to get married. Those are total assets (there are some exceptions for housing and some other assets… I haven’t dived into the details of that .. yet).
Example: A grandparent dies and gives an inheritance of $3000 to their disabled granddaughter. She would immediately lose eligibility and might be eligible again in 36 months. Instead, if the funds are contributed to the granddaughter’s ABLE account and then disbursed to the granddaughter (for appropriate purposes)… no problem. In this case, the $30 fee is a bargain.
Example: A company subsidizes a disabled employee’s rent by $500 per month. This would be considered income and likely create eligibility problems. If the money is contributed to the disabled employee’s account (maybe funded under ABLE at Work)… the funds would not affect their eligibility. Again, the annual fee is a great deal.
Once again, looking at ABLE programs based on their annual fees and flexible spending is probably paramount. It is probably also prudent to do very good recordkeeping for any purchases made with ABLE account funds to ensure that they are not construed as income or assets.
Medicaid Clawbacks
I posted some information about ABLE accounts to a Facebook community and a parent stated they would absolutely NOT set up an ABLE account because of the threat of Medicaid clawbacks. ABLE accounts aren’t the problem here – it is Medicaid – and they’ll go after (almost) any funds that they can.
Most states will attempt to “claw back” the funds used for medical benefits after the death of a Medicaid participant. Some states are not doing this (more research to follow). Most disability services are funded by Medicaid (Long Term Services and Supports (LTSS), Home and Community-Based Services (HCBS), etc.)… so, Regional Center services here in California would be affected, I think.
First off worry about funding the disabled individual while they are alive – and worry about these clawbacks separately.
This is also true for Special Needs Trust funds, but not for Pooled Trusts, as I understand it. Any funds that are owned by an individual or for the exclusive benefit of an individual are considered “fair game” by Medicaid.
I went down a couple of rabbit holes this week – and moving to different states or countries is something I’m going to be coming back to. If you have any experience relocating to a different place for disability reasons – I’m very interested in your experience!**
Other Resources
More on Trusts and SSI and other benefits.
Individual Development Accounts – looks intriguing.
Plan to Achieve Self-Support... also interesting
Medicaid Estate Recovery Information by State (2022)
Understand Medicaid’s Look-Back Period; Penalties, Exceptions & State Variances
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* I suspect the ROTH IRA style tax advantages were a collateral benefit of building the ABLE Account as a 529A account extension of the 529 College savings account.
** The other rabbit holes were looking into Suspension Data for our local school district (Palo Alto Unified). We have substantial disproportionality for disabled students and other groups, relocating to other countries for disabled people (an interesting strategy that I’m going to include in the Disability Financial Navigator course), and a looking at a report on LTSS services from the University of Minnesota’s Institute on Community Integration (there are a number of research centers on disability around the US that do a lot of work that doesn’t get a lot of attention!
