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)

financial management

legal fees

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:

Expense: Uber

Cost: $25

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.

1. 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.
2. 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. 

You’ve read the merits of an ABLE account, and now you’re ready to open an account. So, where do you start? 

First, you must find out if the person with the disability is eligible to have an ABLE account. Eligibility is determined by age of onset and severity of the disability, which can be physical, intellectual, mental or blindness. If the symptoms of the disability appeared prior to age 26 and the disability is significant enough that it causes marked and severe functional limitations in the
person’s life, then they would be considered eligible.

Since most of my readers have a loved one with Down syndrome, this is easy because he/she was born with the disability. If the person is already deemed eligible for Supplemental Security Income (SSI) or Social Security Disability Income (SSDI), then they automatically meet the severity of disability requirement.

Next, If they are not yet eligible for SSI or SSDI, then they will need to get a letter certifying the disability from their doctor. Troy falls into this category, because of he is a minor and our income level. There’s still no official certification form that doctors must fill out, so just have your child’s doctor certify that your child’s disability occurred prior to age 26 and causes marked and severe functional limitations in your child’s life.

You won’t actually turn this letter into the ABLE account state agency or the federal government. The IRS and state agencies have stated that they have no way of storing all these confidential medical documents. Instead, you’ll want to keep this certificate in a safe place in case the IRS ever audits the ABLE account. For more information on eligibility click here.

Now, it’s time to compare state ABLE programs.

Twenty-seven states have started ABLE account programs, and most allow non-residents to sign up. For example, we’re a military family living in Ohio this year; who knows where we’ll live next year. We opened a Tennessee ABLE account for Troy, because the state has no cost to open or maintain the account. The down side is Tennessee’s ABLE accounts don’t have debit cards yet, which is ok for us now because we don’t plan to use this account until Troy’s an adult.

Most states let you transfer to another state for low or no transfer cost, if you change your mind about which ABLE program can best suit your needs..

All ABLE accounts have tax savings in that their earnings are exempt from federal and state income tax; much like a 529 account. However, a handful of states have made these accounts even more tax-advantaged by creating an income tax deduction for contributions to an in-state ABLE account.

The best place to compare all the ABLE Programs is the state map comparison tool found at the ABLE National Resource Center.

They have a detailed and interactive comparison chart, which allows you to compare up to 3 states side-by-side using different criteria like whether or not the state has annual set fees or if there’s a minimum contribution.

Remember the potential account holder can have only one account open. Only the guardian of the person with the disability or the person with the disability themselves (or someone with legal power of attorney) can open and be in control of the account.

Check with the state you open the account with to determine who has control of the account once your loved one with Down syndrome becomes an adult. Some states suspend the ABLE account until the account holder decides if anyone else should have control of the account. Other states, like Tennessee, allow the guardian to continue having control unless that power is specifically revoked by the account holder.

Below is an introductory video to understand the benefits of an ABLE account. You can also continue to get information from the ABLE National Resource Center as part of their month-long #ABLEtoSave campaign. Upcoming topics include what the ABLE funds can be used for, what some of the key investment terms mean, and factors to consider when choosing the right program for you and your family.

Let me know below if you plan to open an ABLE account or any concerns you may have.