Debunking ABLE Myths
Myth: An individual has to be receiving Social Security benefits to qualify for an ABLE account.
Fact: The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26. If you meet this requirement and have also been found eligible to receive benefits through Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI) programs, you are automatically eligible to establish an ABLE account. If you don’t receive SSI and/or SSDI but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of disability certification from a licensed physician (an M.D. or D.O.), indicating that the significant disability onset occurred prior to age 26.
Myth: An individual must be under the age of 26 in order to have an ABLE account.
Fact: An individual doesn’t need to be younger than 26 to establish an ABLE account. An individual of any age could open an ABLE account, as long as the onset of disability was before the individual’s 26th birthday.
Myth: The only individual who can deposit money into the ABLE account is the qualified beneficiary.
Fact: Any individual, such as a family member, friend or the person with a disability, may contribute to an ABLE account on behalf of the beneficiary and for qualified disability expenses. In addition, the term “individual” also includes a trust (i.e., Special Needs Trust or Pooled Income Trust), estate, partnership, association, company or corporation. Funds may also be rolled over from a 529 college savings account into an ABLE account!
Myth: An unlimited amount of money can be deposited into an ABLE account.
Fact: The total annual contribution by all participating contributors for any given tax year is currently $15,000. The amount may be adjusted periodically for inflation. Currently, $15,000 is also the maximum amount that individuals can make as a gift to someone else and not pay taxes (gift tax exclusion). In addition, ABLE account owners who work may contribute up to an additional $12,140 (2019) of their gross income into their ABLE account if they do not have an employer-sponsored retirement plan. Residents of Alaska can contribute $15,180 and residents of Hawaii can contribute $13,960. The total combined account limit, over time, is subject to state-specific limits for education-related 529 savings accounts. State ABLE limits range from $100,000 for $529,000. In consideration of the annual contribution limit per calendar year, accounts may reach that state limit over time.
Myth: Once my ABLE account exceeds $2,000, I lose my eligibility for SSI benefits and Medicaid.
Fact: The first $100,000 in an individual’s ABLE account would be exempt from the SSI $2,000 individual resource limit. If and when a SSI recipient’s ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit would be suspended until such time that the account balance falls below $100,000. However, this would have no additional effect on the beneficiary’s eligibility for most other federally-funded, means-tested benefit such as Medicaid.
Myth: If I have a Special Needs Trust or participate in a Pooled Income Trust, there is no need or benefit for me to set up an ABLE account.
Fact: While the tools used for financial planning can be different from one beneficiary to another, ABLE accounts offer various options, including checking account and debit card options, which may be more flexible and accessible than other types of trusts and savings accounts. An ABLE account may also provide more choice and control for the beneficiary and family. The cost of establishing an ABLE account is likely to be considerably less than either a Special Needs Trust or Pooled Income Trust. With an ABLE account, account owners have the ability to make choices and control their funds as circumstances change. For many families, the ABLE account is a significant and viable option in addition to, rather than instead of, a trust.
Myth: If my state does not have an ABLE program, there is no opportunity for me to participate in the program.
Fact: While the original law passed in 2014 did stipulate that an individual had to open an account in their state of residency, this provision was eliminated by Congress in 2015. This means that regardless of where you might live, and whether or not your state has decided to establish an ABLE program, you are free to enroll in any state’s program provided the program is accepting out-of-state residents.
To determine which state ABLE programs are accepting out-of-state residents, please refer to the individual state pages.
Myth: In all circumstances, the account must pay Medicaid the remaining balance upon the death of the beneficiary.
Fact: When an individual dies, funds remaining in the ABLE account, after the payment of outstanding Qualified Disability Expenses (which may include funeral and burial expenses), may be used to reimburse the state for Medicaid-related services. The amount of any Medicaid payback is calculated based on amounts paid by Medicaid after the creation of the ABLE account and excludes amounts paid by the beneficiary as premiums to a Medicaid buy-in program. Some states have passed state laws that would prohibit this Medicaid payback provision. When enrolling, we encourage you to ask about these laws. Remaining ABLE funds are payable to the designated heir under the estate.
Myth: An individual has to visit or contact a bank in order to set up an ABLE account.
Fact: ABLE programs are developed and managed on the state level. Therefore, the managing state has the flexibility to determine the process with which a person enrolls. Thus far, in an effort to keep administrative costs low and to ensure an affordable program for the beneficiary, enrollment (and maintenance of the account) is primarily done through the individual state ABLE program website/online portal. However, some states also offer the option to enroll via mail or fax.