Are you still skeptical about opening an ABLE account for your child with Down syndrome? Do you believe that your child’s SSI or Medicaid benefits would be at risk? Are you afraid the government will take the savings if your child passes?
Even though roughly 10 million Americans could benefit from an ABLE account, only 10,000 accounts have been opened since the first program started in 2016.
So, why aren’t more people taking advantage of this tax-advantage savings accounts? “In a few words: lack of information and skepticism,” says Senior ABLE Advisor Heather Sachs.
When Troy was first born we opened a special needs trust for him, because of our worry the government would take away any savings left in his name. Before the Achieve a Better Life Experience (ABLE) passed, individuals with disabilities could only have $2000 in their name if they wanted to receive needed government supports.
The special needs trust cost us more than $500 dollars to open. Troy can only use the trust upon my husband and I’s death, because it costs so much to manage the account once in use.
In comparison, it cost us nothing to open and maintain an ABLE TN account, and we can use the money right now just a like a checking account. Special Needs Trusts and ABLE accounts are not mutually exclusive though. They have their own separate costs and benefits, but many people are incorrect in their understanding of ABLE accounts.
Let’s debunk some of the most common myths surrounding ABLE:
1. Once the ABLE account exceeds $2,000 the account holder loses his or her SSI and Medicaid benefits.
Wrong! For the first time ever, individuals with disabilities can save like anyone else WITHOUT losing needed government supports. This is a civil rights issue, and one the ABLE law did a good job of remedying. I should be able to save for my son with Down syndrome, just like I save for my typical children. Money in an ABLE account is not a countable asset in determining SSI or Medicaid eligibility. ABLE accounts allow you to save up to $100,000 dollars without losing government disability assistance. Even when the account exceeds $100,000 the account holder’s SSI or Medicaid benefits are just suspended, not canceled. The account holder must spend down below the $100,000 threshold for benefits to kick in again. Also, if money in an ABLE account exceeds the $100,000 ceiling, the beneficiary can still receive Medicaid, SSDI, SNAP, Section 8, etc.
2. If the account holder dies, the government takes all the money in the ABLE account.
Not quite! This is the biggest concern of parents I talk to who are still skeptical about opening an ABLE account for their child with a disability. Here’s what you need to know. ALL outstanding disability expenses are paid first before Medicaid can make a claim. That means burial and medical expenses, outstanding loans, etc. must be paid first before the state can even look at the account. Also, state Medicaid agencies MAY make a claim but are not required to do so, and some states like Pennsylvania have prevented this “clawback” through legislation. Check you state for details, and start advocating to end the Medicaid clawback in your state.
3. ABLE Accounts are like 529 College Savings Accounts, but my child with Down syndrome isn’t planning on attending post-secondary school so he/she doesn’t need one.
Wrong! Although ABLE accounts are like 529 accounts in that they’re a tax-advantage type savings vehicle, the account holder can spend ABLE money on much more than just post-secondary costs. “The list of eligible expenses is defined very broadly,” explains Sachs. ABLE account money can be spent on anything that improves the life, independence and wellness of the account holder. This means Troy could use his ABLE account money for an iPad to play his favorite Starfall phonics game. An adult beneficiary could buy an iPhone (assistive technology) to call Uber (transportation) to get to ballroom dance lessons (wellness), and their ABLE account would pay for it all. “There’s no preapproval necessary for these purchases, but keep your receipts in case you’re ever audited,” Sachs says.
4. We already opened a trust for our child with a disability, and you can’t have both a trust and ABLE account.
Wrong! An ABLE account is not in competition with a special needs trust. You can have both; we do. They’re just two tools in your toolbox. The biggest difference is a special needs trust is taxable, usually have higher costs to set up and maintain, and you must have a lawyer or trustee manage it. But the government cannot touch any money in a trust, whereas states MAY make a claim on ABLE money once the account holder passes (after all other disability and life-related expenses have been paid).
As you can see, there a lot of advantages to an ABLE account. There’s tax incentives, low cost to start and maintain, and a wide list of eligible expenses.
Yes, your state MAY make a claim on the account if your child passes suddenly, but this may be a reason to use the account differently than say a special needs trust. You may keep a smaller amount of money in the ABLE account, or use it for grandparents or family members to gift to your child.
For more information about ABLE and sign up for a the ABLE National Resource Center’s weekly webinars (every Wednesday this month) click here.