There are two basic reasons for opening an ABLE account:

1. To save money without worrying about the resource limits for Supplemental Security Income (SSI) and other benefits; and
2. To take advantage of tax benefits.

We'll look at how ABLE accounts affect the resource limits for SSI and other programs, the tax benefits of an ABLE account, and how an ABLE account and a Special Needs Trust can both be part of your financial plan.

Resource Limits

To get benefits from SSI, the Supplemental Nutrition Assistance Program (SNAP), and some other programs, you must have limited resources (cash savings, retirement funds, etc.).

Some people avoid building assets and saving up money, because they are afraid they’ll lose their benefits. Now, people with disabilities and their families can save money in an ABLE savings account without affecting SSI and other benefits, including:

• Medicare Savings Programs
• The Medicare Part D Extra Help/Low Income Subsidy (LIS), and
• SNAP.

The goal of an ABLE account is to give people with disabilities more independence and financial security.

If you have a job, you can save money in your ABLE account without any changes in your benefits. An ABLE account also lets family and friends give you money without affecting your benefits. And any interest or other growth in the account is tax-free, as long as you spend the money from your ABLE account on disability-related expenses.

Tax Benefits

ABLE accounts can have three tax benefits:

1. The growth of your investments isn’t taxed,
2. If you work and save earned income in your ABLE account, you may qualify for the federal Saver's Credit.
3. If you have your ABLE account with Colorado ABLE, starting in 2023 you may get a state tax deduction for any contributions you make to your account.

1. Untaxed Growth of Investments

ABLE programs typically offer multiple investment options, letting you choose from various mutual fund plans (which offer greater rewards but can go up or down, depending on the market), or savings accounts (which pay low interest, but are guaranteed by the federal government). You pay no income taxes on any growth in the value of your investments or any interest earned on your savings — so your wealth may grow faster.

However, any money taken out of an ABLE account must be spent on qualified disability-related expenses. If you take money out of your ABLE account and don’t spend it on qualified disability-related expenses, you may have to pay income tax plus a 10% penalty.

2. Saver's Credit

If you work and save some of your earned income in an ABLE account, when you file your federal taxes you may get the Saver’s Credit (also called the Retirement Savings Contributions Credit). The Saver's Credit cuts the amount you pay in taxes.

Deposits to any ABLE account will only qualify you for the Saver's Credit if you:

• Owe taxes
• Put money from your earned income into the ABLE account (money from other sources, like family or friends, doesn’t count), and
• Are not also making contributions to a retirement plan. (Though you may separately qualify for the Saver’s Credit based on your retirement contributions.)

There are other requirements to get this credit. Learn more about the federal Saver’s Credit.

3. State Tax Deduction

If you have your ABLE account with the Colorado ABLE program, starting in 2023 you may get a state tax deduction for any contributions you make into your account. For details, contact a tax expert or the Colorado Department of Revenue Taxpayer Helpline at 1-303-238-7378.

ABLE accounts and Special Needs Trusts

A trust is a legal arrangement in which a person or organization manages assets for you (the beneficiary), with the trust's assets used to pay for your expenses. A Special Needs Trust holds assets for a person with a disability. If you have a Special Needs Trust, you may want to also open an ABLE account.

To open an ABLE account, you must have a disability that began before you turned 26 and that meets the Social Security Administration’s (SSA) standards. (SSA has different disability standards for children, for adults, and for blindness.)

You definitely qualify for an ABLE account if you get benefits from programs that use SSA’s disability standards. This includes Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits (CDB), Health First Colorado (Medicaid) if it is based on your disability, or the Health First Colorado Buy-In Program For Working Adults With Disabilities (Medicaid Adult Buy-In).

If you don’t get disability-based benefits, you can still qualify for an ABLE account by “self-certifying” that your disability meets SSA’s standards. To do this, a doctor must document the fact that your disability meets SSA’s standards, but with one major difference. Instead of saying that your disability limits your earnings, for self-certification for an ABLE account, the doctor must verify that your disability causes “marked and severe functional limitations.”

Generally, this means that your disability must be on Social Security’s List of Impairments or be at least as severe as an impairment that is on that list. Conditions on Social Security’s list of Compassionate Allowances Conditions also usually qualify.

Note: You should get a new document from your doctor each year. If you are self-certifying your disability, the Colorado ABLE program requires you to have a current annual document, but you do not have to submit it to Colorado ABLE each time.

You can only open an ABLE account if your disability began before you turned 26 and meets the Social Security Administration’s (SSA) standards. (SSA has different disability standards for children, for adults, and for blindness.)

If you meet these rules, an ABLE account is easy and inexpensive to set up, and you don’t have to use a lawyer or other advisor.

The ABLE account is in your name, with you listed as the owner of the account (also called the designated beneficiary). You can open your own ABLE account or, if needed, a parent, a legal guardian, or someone with a valid power of attorney can open it for you.

ABLE programs are set up by each state. Colorado's ABLE account program is Colorado ABLE.

States post their ABLE program details online, which generally includes how to apply or enroll online. Usually, you do not need to live in a particular state to open an ABLE account there.

You need to deposit a minimum amount to open an account, typically $25 – $50 (but it varies by state). You may also have to pay fees for maintaining an account or other services.

Each state offers several different investment strategies, including mutual fund accounts and federally insured savings accounts. An ABLE program might offer anywhere from 4 – 15 or more different options. It might help to get financial advice from an accountant, financial planner, or other professional as you compare different state ABLE programs, so you can pick the one that works best for you.

How Do I Choose an ABLE Program?

If you qualify for an ABLE account, you can open one in any state that offers accounts nationwide — it’s your choice. Each state has the option to offer its ABLE program nationwide or only to state residents, so you need to check which states let you open an ABLE account.

You are only allowed one ABLE account, so you need to compare the different programs and decide which state offers the account that is best for you.

But don’t worry; you don’t have to stay with the first state program you choose. You can switch your ABLE account from one state to another. You may have to pay minor fees to transfer your money. And you can change your investment strategy within the same state program up to two times each year.

The ABLE National Resource Center lists details about each state’s ABLE program.

Here are some things to think about when comparing state ABLE programs:

• What is the minimum amount needed to open an ABLE account, and is there a fee for opening an account? Are there any monthly or annual fees?
• How easy is it to put money into the account and take money out for qualifying expenses? For example, can you get money by electronic transfer or do you get a paper check? How long does this take? Does the account come with a prepaid debit card that you can use anywhere, at any time? Are there any extra fees for having a debit card?
• How good is the customer support? Try calling or emailing the program to see whether it’s easy to get someone to respond, and if that person seems helpful.
• Do the investment options meet your needs? Each state offers multiple investment choices, like mutual funds or savings accounts. Some investments may offer better returns than others, but may come with a greater risk, and the amount in your account can drop when the stock market drops. (Under the federal ABLE rules, you can change your investment options twice in a calendar year.)
• Are there any extra benefits for people living in your state? Some states give extra tax benefits for residents of that state. If you live in Colorado and have your ABLE account with Colorado ABLE, you may get a state tax deduction for any contributions you make.
• What is the most you can put into the account and still make deposits? Each state has a contribution limit at which they stop letting you make deposits. This limit ranges from $200,000 – $500,000 or more, depending on the state. For the Colorado ABLE program, the contribution limit is $400,000. (You don't need to worry about this until your account gets close to this level.)

Here are some important rules to think about related to putting money in an ABLE account:

1. There are limits on how much you can deposit each year.
2. You can’t make any more deposits if the total amount of your contributions goes over a certain level, until your account balance drops back down. For the Colorado ABLE program, the maximum contribution amount is $400,000.
3. You can move money from a 529 education account into an ABLE account.

These rules are explained in more detail below.

1. Yearly Deposit Limits

There are two limits on how much money can be put in your ABLE account each calendar year:

• Up to $17,000 in total deposits can come from any source — you, your family and friends, your benefits, and other unearned income, and
• If you have a job, you can deposit another $13,590 of your own earned income into your account. The $13,590 must be from your own earnings, and if you earn less than $13,590, the amount you can contribute would be lower.
  • Note: If you or your employer make contributions to a retirement plan set up by your employer, you might not qualify for the extra ABLE contribution amount based on having a job (you can still make regular ABLE contributions). If you aren't sure about this, ask your ABLE account program or check with a tax expert. Get more information about this rule from the ABLE National Resource Center.

Combined, this means that if you work, you could save as much as $30,590 in your ABLE account in 2023.

2. Deposit Limit if Your ABLE Account Has a Lot of Money

Each state sets a maximum amount that can be in an ABLE account, which might be $200,000 – $500,000 or more. For the Colorado ABLE program, the limit is $400,000. If your ABLE account balance reaches the maximum amount, you cannot make any more deposits until the account balance drops back down. Note: This limit doesn’t affect many people.

3. Moving Money from 529 Accounts to ABLE Accounts

529 accounts are a type of account that lets people save money for college or other educational expenses. They work very similarly to ABLE accounts. In fact, they are so similar that ABLE accounts are officially called “529A accounts.”

Money from a 529 account can be rolled over tax-free into an ABLE account. That means money can be moved from a 529 account and into an ABLE account with no penalties. In this way, money that hasn’t been or won’t be used for educational expenses can instead be used for any qualified disability-related expenses from an ABLE account.

Here are a couple of important things to understand about rolling money over from a 529 account to an ABLE account:

• The 529 account must be in the name of the ABLE account owner or a family member, and
• The rollover counts toward the ABLE account annual deposit limit for all sources other than your own earned income ($17,000 in 2023).

You can spend the money in your ABLE account on any “qualified disability expense.” This can include:

• Housing (which can be mortgage payments, property taxes, rent, furniture, heating fuel, gas, electricity, water, sewer, or garbage removal)
• Transportation (including gasoline and car repairs, public transportation, paratransit, and taxis)
• Medical expenses, prevention, and wellness (including insurance premiums and copays)
• Education
• Employment training and support
• Assistive technology and personal assistance services
• Financial management and administrative services
• Legal fees
• Basic living expenses

It’s your job to make sure an expense qualifies, and to keep records of how you use your ABLE account money. If you are audited by the Internal Revenue Service (IRS), you will need to show them how you’ve used any money from your ABLE account. Keep all of your receipts. You can put your receipts for ABLE into a binder, or scan them and save them on your smartphone, tablet, laptop, or computer.

If you take money out of your ABLE account but do not use it for qualified disability expenses, you might have to pay federal income tax on that amount, plus a 10% penalty, and it could affect Supplemental Security Income (SSI) and other benefits.

The rules are stricter for housing-related expenses. If you take money out of your ABLE account for housing-related expenses, you must spend that money in the same month you took it out of the account.

Some states require you (or your parent, guardian, or agent) to prepare a withdrawal request saying how the money will be used for qualified disability expenses, and it can take 5 – 10 business days for you to get the money.

Other state ABLE programs offer a prepaid debit card that lets you (or your parent, guardian, or agent) load specific amounts from your ABLE account onto the card. You can then use the card to pay for qualified disability-related expenses up to the amount loaded on the card (but you still need to keep your receipts to document how you spent the money). You need to spend the amount loaded on the card on qualified expenses by the end of each year. If you don’t, it may affect your SSI benefits, and you may have to pay income tax and a 10% penalty.

The Colorado ABLE program lets you use a debit card connected to your active checking account, or for an additional fee you can get checks for your Colorado ABLE account.

Brittany’s Story

Brittany becomes paraplegic at age 22 after a rock climbing accident. Now 31, she lives with a roommate in an accessible apartment, works a part-time job as an office clerk, and gets Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), and Health First Colorado (Medicaid) benefits.

She has a van that has been adapted so she can use it, but she knows it’s aging and won’t last forever. Brittany wants to be able to start saving up for a better vehicle, but she worries that if she saves more than $2,000, she’ll lose her SSI benefits.

Her parents are willing to help her with the cost, but Brittany worries that their gift will also count against her benefits.

Sometimes Brittany’s supervisor asks her to work a few extra hours, which would mean a little extra money — but Brittany usually says no because she worries she’ll have too much money in her checking account at the end of the month, putting her over SSI’s resource limit.

Brittany feels like she can never get ahead, and that she’s always one step away from a minor disaster, like a car repair she can’t afford.

Then, at a monthly support group that Brittany attends, someone mentions how ABLE accounts let people with disabilities save some money without losing SSI and other benefits. The person doesn’t know a lot of details, but thinks you have to be younger than 26 to open an account. Brittany’s heart sinks when she hears that, but she decides to check it out anyway.

Learning More

Brittany decides she needs to get expert advice, so she calls a benefits planner for SSI. She’s connected with Pam, who asks how she can help.

Brittany explains her situation, and says she heard there might be a savings program for people with disabilities, but isn’t sure she qualifies. Pam says yes, the ABLE program helps people with disabilities be more independent and financially secure.

“But don’t I have to be younger than 26 to open an ABLE account?” Brittany asks.

“It doesn’t matter how old you are now, as long as your disability began before you turned 26,” Pam explains. “Because you were 22 when your disability began, and you get SSI benefits now, you definitely qualify for an ABLE account. And the money you save in your ABLE account won’t affect your benefits from Health First Colorado (Medicaid) either.”

Brittany asks if there are any limits on ABLE accounts, and Pam explains that there are two limits on how much can be put into an ABLE account in a single calendar year — up to $17,000 from any source (including your family and friends, your benefits, and other unearned income) and, if you have a job, another $13,590 from your own earned income. As long as the account balance is less than $100,000, the money saved won’t affect SSI benefits."

Brittany laughs, “I can’t imagine being able to save $30,590 in a single year, or ever having $100,000 in an account! Still, this is good stuff to know.”

Pam explains that any growth in an ABLE account is tax-free and, if Brittany is saving money from her earned income, she might qualify for the Saver’s Credit when she files her federal income taxes. And if Brittany opens her ABLE account with the Colorado ABLE program, she might also get a state tax deduction for any contributions she makes to her account.

Pam adds that it’s important to remember that any money taken out of the account must be used to pay for disability-related expenses.

“Oh, does that only mean medical expenses?” Brittany asks. “I really want to save up for a new van.”

“You can do that,” Pam says. “Qualified ABLE expenses include transportation, housing, health and wellness, education, employment training and support, assistive technology, personal assistance services, and basic living expenses.”

Getting Started

Brittany asks what she has to do to open an ABLE account. Pam explains that each state can set up an ABLE program, and mentions that Colorado's ABLE account program is Colorado ABLE.

“Oh, do I have to open my account in Colorado’s program?” Brittany asks.

“No, you can open an account in any state that offers ABLE accounts nationwide. But you can only have one ABLE account at a time, so you need to choose the state program that works best for you,” Pam says.

Pam directs Brittany to the ABLE National Resource Center website, where Brittany can find states that offer ABLE accounts nationwide, and compare their programs.

Brittany asks Pam a few more questions. Then she gets off the phone so she can start researching state ABLE programs.

When she has the details she needs, Brittany meets with her parents to go over what she has learned, and to discuss possible investment strategies. They ask their family financial planner a few questions, then Brittany picks an ABLE account program, and enrolls online.

Her parents set things up to automatically put $200 a month into Brittany’s account, to help her save up for a new van. And Brittany now says yes whenever her supervisor offers her a little extra work, because she can put the extra money into her ABLE account. Brittany keeps track of both her own contributions and the money from her parents. At the end of the year, Brittany has about $6,000 in her ABLE account.

Brittany now has an ABLE plan in place that will let her save money to buy her next van and other things she might need, and she worries less about her future.