We opened an ABLE account for our 4-year-old son, Troy, this past spring. Ultimately, Troy will decide how to spend this money when he becomes an adult, and his spending options are far-reaching.
The sky is the limit for possible ways to spend money from an ABLE account.
The Achieve a Better Life Experience (ABLE) Act states that money can be spent on any “qualified disability expense,” and that term is defined very broadly. As long as the beneficiary is eligible, the account can be used to offset the cost of any disability-related expense. This doesn’t just mean medical expenses.
“The ABLE account should be used to maintain or improve a person’s life, well-being, or independence,” explains Chris Rodriguez, Public Policy Director for the National Disability Institute. Categories that these expenses could fall under include:
Education (tuition, books, tutoring)
Housing (rent, mortgage, property tax, funds used for housing expenses will NOT impact SSI so long as the funds are disbursed from the account in the same month in which the housing expense is paid)
Transportation (Uber, taxi, car payment, bus)
Employment training and support (job coach, continuing education, certification,Interview prep and resume development, Transportation to employment)
Assistive technology and personal support services (cook, housekeeper, iPhone, Dragon Dictation)
health, prevention and wellness (yoga, ballroom dance, medical bills)
expenses for oversight and monitoring
basic living expenses
funeral and burial expenses
The ABLE Act explicitly states that the account is designed to SUPPLEMENT Medicaid supports, not replaces these services. “ABLE can cover gaps in services and supports and, for some people, enable them to maintain Medicaid coverage while possibly saving for future expenses,” says Rodriguez.
ABLE Account holders do not need pre-approval to spend the funds, and many ABLE programs provide pre-paid debt cards to get the money instantly.
Rodriguez says you do need to keep an informal record of what is spent. “Keep track of your receipts of all purchases and record how each expense meets the definition of a ‘Qualified Disability Expense’ in case you’re audited by the IRS,” explains Rodriguez. He says the explanation only needs to be a sentence or two, and if the account holder uses a debit card it will likely keep electronic receipts for you.
Here’s an example of how you can record the Qualified Disability Expense:
How this qualifies as a Qualified Disability Expense: Troy uses Uber to get to work on snowy days, because public transportation is sometimes slow. Without Uber Troy may not get to work on time. Employment and transportation improve Troy’s independence.
Misuse of ABLE Funds
Rodriguez says there are two ways to misuse an ABLE account, potentially threatening the account holder’s eligibility for federal means testing.
- Opening more than one ABLE account. “There’s a 10% penalty and income taxation on ABLE funds if it’s found that a person has more than one account. It will also threaten their SSI benefits,” Rodriguez explains.
- Spending money on something other than a Qualified Disability Expense. “The same penalty applies if the IRS finds that the ABLE funds have been used on non-QDE.” Rodriguez says the funds can indirectly benefit someone other than the account holder, but the account holder should be the primary person benefitting from all expenses.
If you’re interested in comparing different state ABLE programs go here. To learn more about the myths of ABLE accounts click here. And if you want to learn more about ABLE go here.