Saving with “ABLE” to Meet the Significant Costs of Living with a Disability

The Federal government’s Social Security Disability Insurance benefits a number of Americans. Applicants are granted this insurance payment on the basis of a stringent medical records review to establish disability. The SSDI (Social Security Disability Insurance) program does not put a ceiling on the applicant’s or his/her spouse’s unearned income or the amount of assets though the SSI (Supplemental Security Income) has set a limit as regards income and resources. However, the social security administration puts a limit on the amount of money a beneficiary can earn through work when receiving SSDI. This leads us to the thought whether Americans should think more seriously about investing in disability insurance.

Americans Underestimate the Risk of Disability When you think of disability, the things that come to mind immediately are accidents and workplace injuries. However, it is estimated that around 90% of disabilities are caused by a health condition or illness such as arthritis, cancer or back pain. An Anthem survey points out that when it comes to protecting themselves and their families, 90% of Americans think it more important to lock their doors and windows while only around 40% have disability insurance that could ensure them monetary protection in case they become disabled and are unable to work. Every year, May is observed as the disability insurance awareness month in America with a view to encouraging people to consider that though disability may seem unlikely it is more common than people think. The sad truth is that most people underestimate their risk for disability. The Centers for Disease Control and Prevention (CDC) highlights the fact that in the United States, one out of every five adults has a disability. Their statistics shows that more than one in four of today’s twenty-year-old people will become disabled before they retire. Any kind of disability can prove detrimental to a person’s physical, emotional and financial health.

The “ABLE” Solution Achieving a Better Life Experience – that is what ABLE stands for. It is a new type of taxadvantaged savings account established by the Congress that is designed to support disabled individuals and their families. With this account, people can save money to help pay for their expenses without foregoing their eligibility to receive federal assistance.

ABLE accounts can be created following the ABLE Act of 2014 and passage of state legislation.

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 The money in an ABLE account can be used to cover education, medical and dental care, transportation and housing expenses among other expenditure.  The beneficiary is the account owner, but contributions to the account can be made by anyone with post-tax dollars. Contributions to this account are not tax deductible; they are exempted from the federal gift tax.  The income earned by these accounts will not be taxed and money withdrawn from them is tax free provided they are used for qualifying expenses.  People with significant disabilities can open ABLE accounts as long as those disabilities existed before the age of 26.  Applicants meeting the age criteria and who are already receiving SSI or SSDI benefits, automatically qualify. Those who do not receive SSI or SSDI will also be eligible provided that they meet certain criteria and also produce a physician’s letter certifying those criteria.  Only one ABLE account is allowed for each eligible individual.  There is a ceiling on the total contribution to this account -- $14,000 a year though the total amount that can be contributed over the life of the account is determined by each U.S. state, which is $300,000 in many states.  Applicants can enroll in a program in their own state or any other program that accepts residents from other states.

Similar to the tax-free 529 accounts that are used to save money for college education, ABLE accounts are a great option for people living with a disability. It helps to cover the costs related to bringing up a child with significant disability or the costs related to a working age adult who has disabilities. An ABLE account is unique in that it allows the beneficiary and family more control and choice over the account. The cost of establishing this account will be much less than a Pooled Income Trust or a Special Needs Trust (SNT). Along with a Trust program, an ABLE account will be a very useful option for many families.

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