ABLE Accounts

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:

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.

If you get SSI and get help with food and shelter

Generally, if you get SSI benefits, the help you get to pay for food and shelter (housing) may cause you to get lower monthly benefits. For example, if you are single, the most you can usually get in SSI benefits is $841 per month, but if your parents are helping you with your rent and your food, your maximum SSI benefits might go down to $560.67. However, if your parents put money into your ABLE account, you can use the money from your ABLE account for food and shelter and your SSI benefits won’t be affected. That could make a big difference in your monthly benefits!

Note: If you want to use money from your ABLE account for housing-related expenses, make sure you take out and spend the money in the same month. Learn more about ABLE account spending rules.

Tax Benefits

ABLE accounts can have two tax benefits:

  1. The growth of your investments isn’t taxed, and
  2. If you work and save earned income in your ABLE account, you may qualify for the federal Saver’s Credit.

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 an 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 Saver’s Credit.

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.

An ABLE account:

  • Is easier (and cheaper) to open and manage than a trust, but your disability must have begun before you turned 26
  • Provides tax benefits (as long as any money withdrawn is spent on qualified disability-related expenses)
  • Gives you more control and more choices.
  • Doesn't make you have a trustee manage the account, as you have to do with a Special Needs Trust. Instead, you can manage your own account or ask someone to help oversee and manage your ABLE account.
  • Lets you use the money for housing expenses without making your SSI benefits go down
  • May let you use a debit card to pay for qualified disability-related expenses (Colorado ABLE does this), instead of having to ask each time you want to take money out of the account.
  • Any money that’s in your ABLE account when you die is used to pay back any Health First Colorado (Medicaid) benefits that you got after you opened the ABLE account. After that, the money that’s left goes through probate (a long process) before your heirs get it.
  • Has limits on how much money can be deposited in the account each calendar year.

If you get SSI benefits, your SSI stops any time you have more than $100,000 in your ABLE account. Plus, each state stops letting you deposit money into your ABLE account after it reaches a certain level ($200,000 – $500,000 or more, depending on the state), until your account balance drops back down. For Colorado ABLE, the contribution limit is $400,000.

A Special Needs Trust:

  • Has no limits on contributions
  • Does not require that your disability began before you turned 26
  • Might not have to repay your Health First Colorado (Medicaid) benefits after you die, depending on the specific type of trust and who the money in the trust comes from
  • May offer tax benefits

Learn more about Special Needs Trusts.

The bottom line: Because there are limits on how much you can put into your ABLE account each year, you cannot replace a trust with an ABLE account. Instead, they can both be part of your overall financial plan.

Learn more