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529A (ABLE) Accounts: What They Are and How They Work

529A (ABLE) Accounts: What They Are and How They Work

May 15, 2023

Often, individuals with disabilities and their families rely on publicly funded housing, health care, and food assistance programs to help care for them individually as they age. Eligibility for these programs requires the individual to have less than $2000 in liquid resources such as cash, bank accounts, or investment accounts. A 529A (ABLE) Account can help families save for the individual's future without losing assistance due to the limited financial resources for these programs.

What is an ABLE account?

ABLE accounts are tax-advantaged investment savings accounts available to individuals diagnosed with a disability before age 26 that don't restrict their eligibility to government assistance programs, Social Security Income (SSI), or Social Security Disability Insurance (SSDI). ABLE accounts can help save for costs related to raising a child with significant disabilities or a working adult with disabilities. ABLE account monies can help pay for accessible housing and transportation, personal assistance services, assistive technology, and other health care not covered by insurance, Medicaid, or Medicare. ABLE account monies can cover many types of disability-related expenses over the beneficiary's lifetime, such as financial management, legal services, basic living expenses, and even the funeral and burial of the beneficiary.

ABLE accounts can be funded by the individual (beneficiary), their family members, or friends. For those who want to contribute to the beneficiary's account, the amount of money they can contribute to an ABLE account each year is the same as the annual exclusion amount for gift taxes.

How ABLE Accounts work

If an individual is already receiving benefits under SSI or SSDI, they are eligible for an ABLE account. If they are not receiving benefits, they may still qualify for an ABLE account if they meet the Social Security Administration definition and criteria regarding physical limitations. They must also have a certified letter from a licensed physician explaining the disability submitted to SSI or SSDI to set up the ABLE account. Here are other things to know about ABLE accounts:

  • Only one ABLE account is allowed per beneficiary.
  • Contributions are made with after-tax dollars and accumulate tax-free.
  • The contribution limit for 2023 is $17,000.
  • Investment options vary based on risk tolerance and investment objective.
  • The total contribution limit made over time to an ABLE account is subject to the beneficiary's state limit for education 529 savings accounts.
  • Beneficiaries receiving SSI have a lifetime limit of $100,000, which adjusts based on monies used for expenses that can replenish to the lifetime limit.
  • To open an ABLE account, the onset of the beneficiary's disability must have occurred before age 26.
  • Starting in 2026, the eligibility for ABLE accounts will be age 46.
  • States administer ABLE accounts, and beneficiaries are not limited to their state's plan.

If you want to learn more about an ABLE account, your LPL financial professional can help you determine if an ABLE is appropriate for your situation.

 

Important Disclosures

The content in this material is for educational and general information only and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking #1-05363515

 

Sources:

https://www.finra.org/investors/investing/investment-accounts/able-accounts

https://www.ablenrc.org/what-is-able/what-are-able-acounts/

https://www.investopedia.com/terms/a/able-account.asp

https://www.businessinsider.com/personal-finance/able-account-contributions-limits