Choosing your ABLE Account Strategy

I’ve gone from being a huge fan of ABLE accounts to having serious doubts about the benefits of the program for many disabled people.

Here are two strategies that may help you get the most out of your ABLE account, if you are eligible… and why you may want to choose one or the other *.

ABLE AccountS – Very Quick Review

For those catching up, ABLE accounts are a special version of the 529 college savings account to help disabled people a that works kind of like a Roth retirement saving account: money goes in after taxes have been paid and any investment earnings are tax free.

It also has some extra benefits in that it can be used or almost anything that a disabled person needs what is formally called a qualified disability expense.

If you are eligible for an ABLE account, do you expect to depend on government benefits (SSI, Medicaid, etc.) or not?

Need Government Benefits – or Not? That is the Question

Depending on your state, explicitly “disability services” may not impose asset and income restrictions for eligibility. HOWEVER, access to general government financial and healthcare benefits like SSI and Medicaid pulls you into a tar pit of income and asset restrictions.

No Services Required – a Cool Tool

Don’t need benefits? The ABLE Account is just a really nice tax-advantaged savings and investment tool. It is limited by the host state’s contribution limits (up to $500,000) and a maximum annual contribution currently at $19,000.

Should you use it?

This is a pretty straightforward investment trade-off between this account, its expenses and returns, limitation, and all of the other financial planning criteria based on you individual needs (standard 529 plans, IRAs, Roth IRAs, trusts, etc.).

It may have some advantages because of its flexibility compared to a standard 529 account.

Just a quick note, you can only have one ABLE account (it appears that you can do a rollover from one to another, but I’ve not seen this explained clearly… HOMEWORK ASSIGNMENT!).

Need Benefits…. Legal Money Laundering?

Need basic government benefits? Then it is time for a hard look at the ABLE account.

Problem 1 – More disability, less allowed ABLE account assets

This is just dumb. If you are a person with a more substantial disability as defined by the US… the LESS money you can have in your ABLE account. $250,000 maximum if you need Medicaid, $100,000 is you need SSI.

Problem 2 – Beneficiary Estate Attack!

The ABLE account is a “first party” account and so is potentially vulnerable to Medicaid estate recovery at the time of the death of the beneficiary. Again, more substantially disabled beneficiaries who need Medicaid are the ones who can be hit by this. The practical question is whether the beneficiary should worry about this as a problem … or just make sure there isn’t much left in the account that could be targeted.

ABLE Account Spending Superpower

HOWEVER, ABLE account funds are very flexible… Qualified Disability Expenses include… most of what you are likely to want to spend money on.

This is in contrast to Special Needs Trust funds which can only be used for “fun” things (not keeping you alive, basically)… or owning your house. However, a Special Needs Trust CAN be set up to contribute to an ABLE Account (talk to your estate attorney).

As annual contributions are currently capped at $19,000 per year, money can be moved from a Special Needs Trust or other third party trust, gifting, or whatever into the ABLE account to handle ordinary living expenses during a year.

Best Worst Case Scenario?

Assuming you as a disabled beneficiary need government benefits AND you have access to assets (typically from your family), a “benefits efficient/no-attacksies” model might look like:

• Housing – owned by a special needs trust with the disabled individual as beneficiary.
• Other Funds and Assets – held in one or more third party trust (potentially, but not necessarily, the special needs trust).
• ABLE Account – for living expenses on an annual basis subject to Qualified Disability Expenses restrictions.
• Special Needs Trust – for discretionary spending as needed on an annual basis (this could be either first or third party).

Your Perspective and Situation?

If you have an account or set up for your child or some other disabled beneficiary, how are you strategically using the ABLE account?

Are there some other model that I’ve missed? Let me know.

* – I’m not a lawyer, accountant, financial advisor… this is material is purely informational to provoke your thinking about these issues for your specific circumstances.

** PS – Don’t forget to respect the autonomy of the disabled beneficiary..