ABLE Accounts: Financial Independence for Managing Money

One area that particularly vexes trustees of special needs trusts is how to get beneficiaries what they need without running afoul of the strict rules for public benefits like Supplemental Security Income (SSI).

Monitoring how money is being spent, collecting receipts, and disbursing funds safely are time-consuming processes for trustees. And while some beneficiaries are able to cope or assist, others are completely dependent on others for record-keeping and compliance.

This is where ABLE accounts enter the picture. These tax-advantaged savings accounts, which can fund disability-related expenses, are a game-changer with regard to paying for a beneficiary's living expenses.

What Is an ABLE Account?

Achieving a Better Life Experience (ABLE) accounts allow many individuals with disabilities or their families to establish tax-free savings accounts that won’t affect their ability to qualify for, or remain on, government assistance, as long as the account balance does not exceed $100,000.

The annual contribution limit for an ABLE account, from all sources, is $18,000 a year (as of 2024). However, a person with a disability can also add their wages of up to $14,580 (in 2024, for most states) to an account.

ABLE Accounts: More Than Savings

ABLE accounts are proving to be much more than simply a savings vehicle. People with disabilities are using money in their ABLE accounts to pay for everyday expenses, and there are significant advantages to this approach.

For example, money from an ABLE account can be used to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third party, including a special needs trust, made the same expenditure.

Under ISM rules, the Social Security Administration views money in an ABLE account as the SSI beneficiary’s own money. So, there is no penalty when the SSI recipient uses funds from an ABLE account to pay for their housing expenses.

More and more special needs beneficiaries and guardians are availing themselves of these built-in advantages of ABLE accounts. Research conducted by True Link Financial of transactions in Ohio’s ABLE program from inception to early 2020 indicated that ABLE accounts are generally not being used as the savings vehicles they were intended to be, but rather as checking accounts. True Link found that the average ABLE account balance was only $5,000, well below the $100,000 limit.

Restaurant meals were the most popular item on which ABLE funds are being spent, closely followed by groceries, shopping, gas, discount store items and phone/cable. True Link found that the top three recipients of ABLE distributions were, in order, Walmart, Amazon, and McDonald’s.

For SSI recipients, being able to pay for discretionary items with no ISM reduction represents a significant windfall. At the same time, spending money without having to obtain a trustee’s permission translates into welcome financial independence for a person with a disability.

Beware Scams

However, unfettered access to funds may not be for every beneficiary. Once funds are out of the trustee’s discretion, they can be targeted by fraudsters or others who do not have the beneficiary’s best interests in mind. If a beneficiary who has an ABLE account but lacks the ability to manage their own finances, the only alternative once the parents are no longer around to help may be a guardianship or conservatorship, which is expensive and time-consuming.

Work With a Special Needs Planning Attorney

To determine whether an account is right for you or a family member with disabilities – or whether an existing account could be better used – contact a special needs planner near you. The ABLE National Resource Center website also offers excellent guidance.

For additional related reading, check out the following:

• Who May Open an ABLE Account?
• What Is the Difference Between Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI)?
• Directory of State ABLE Account Programs