Why an ABLE Account?

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, you may get a state tax deduction for any contributions you make to your account in the tax years 2023, 2024 or 2025.

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, you may get a state tax deduction for any contributions you make into your account in the tax years 2023, 2024, or 2025. 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.