ABLE Accounts: Asset Development Tool for Disabled Individuals

By Marva Williams

Community Development and Policy Studies (CDPS) works to improve the socioeconomic prospects of low- and moderate-income (LMI) people by helping to facilitate the flow of credit and financial services to their communities. This is accomplished by monitoring credit conditions within communities, but also by noting the emergence of financial products and services with the potential to remove barriers to asset accumulation and financial stability for vulnerable populations[1]. Individuals with physical and mental handicaps are more likely to be unemployed and twice as likely to be poor, than someone without a disability. In addition to lower earning rates, the disabled have lower savings rates. According to a 2016 report from the National Disability Institute, 81 percent of people with disabilities did not have an emergency fund to cover three months of expenses, as compared to 54 percent of people without disabilities[2].

A new savings and investment tool, the Stephen Beck, Jr. Achieving a Better Life Experience or ABLE Act, for disabled individuals allows qualified people and their families to save for the future, while also protecting eligibility for public benefits. ABLE accounts are savings and investment accounts that can receive contributions from multiple sources, including the disabled individual who is the owner of the account. Total annual contributions may not exceed the current federal gift tax contribution, which is $14,000 in 2017, and total account balances may not exceed $250,000.

To qualify for an ABLE account, the account owner must have developed the disability before the age of 26 and must qualify for Social Security Administration benefits, or received a waiver from the IRS. States, which provide ABLE accounts, offer a wide range of investment options. Accounts can range from aggressive investments that promise higher returns to conservative investments that have an emphasis on capital preservation rather than growth. In addition, some states like Iowa and Illinois are offering checking accounts with a financial institution as a component of their ABLE products.

ABLE accounts offer several benefits:

Preferential federal tax benefits: In general, ABLE programs are exempt from federal taxation. Withdrawals are tax-free when used for qualified expenses and contributions to accounts are a deductible charitable expense.

Disability related expenses: Qualified expenses include rent, medical costs, and other living expenses such as education, housing, transportation, employment training and support, assistive technology, personal support services, medical and wellness services or products, financial management and legal services.

Federal program eligibility: ABLE assets will be disregarded or receive favorable treatment when determining eligibility for most federal means-tested benefits, including Supplemental Security Income (SSI), and Medicaid.

ABLE products are established at the discretion of the state treasurer in each state. Of the five states that are part of the region of the Federal Reserve Bank of Chicago, Illinois, Iowa, and Michigan currently offer ABLE Accounts. In fact, Iowa and Illinois are members of the National ABLE Alliance, a partnership of 15 additional states that offers ABLE accounts with multiple financial options. Indiana recently joined the partnership and will offer an ABLE product soon. Wisconsin does not offer an ABLE program although residents may open an account in another state if that state allows nonresident accounts.

ABLE account policies can be very complex. Up-to-date information on each state ABLE program in the Seventh District can be found at:

Seventh District State Able Program Name Website
Illinois Illinois Able https://savewithable.com/il/home.html
Indiana Forthcoming program N.A.
Iowa IAble IABLE.gov
Michigan MiAble miABLE.org
Wisconsin No current program N.A.

 

The author of this blog would like to thank the following for information on ABLE services, including Jill Crosser of Iowa Able;  Chasse Rehwinkel of the office of the Illinois State Treasurer; Chris Rodriguez, Senior Public Policy Advisor of the National Disability Institute; and Karen Austin and Adam Phillips of the office of the Iowa State Treasurer.

 

[1] See, for example, https://www.chicagofed.org/publications/profitwise-news-and-views/2016/universal-csas-in-illinois-addressing-the-racial-wealth-gap and https://www.chicagofed.org/publications/profitwise-news-and-views/2016/tax-time-savings-an-antidote-to-financial-insecurity both from ProfitWise News and Views, No. 3 2016.
[2] NDI Report Finds Adults with Disabilities Continue to be Economically Shortchanged Despite ADA’s Guarantee.  National Disability Institute.  July 22, 2016.  http://www.realeconomicimpact.org/newsletters/rei_news_08_14.html
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