Building Your Assets and Wealth

ABLE Accounts

A tax-free ABLE account lets people with disabilities save some money without affecting their benefits. It also allows family and friends to give them money to use for a variety of expenses.

If you have a disability that meets the Social Security Administration's disability standards (SSA has different standards for children, for adults, and for blindness), and your disability began before you turned 26, you can open an ABLE account. This can help you:

  • Build assets in an account that has tax advantages. Your investments in an ABLE account won’t be taxed, so your wealth will grow faster. Plus, If you work and save earned income in your ABLE account, you may qualify for the federal Saver’s Credit.
  • Use your savings on many types of expenses. There are rules about spending the money in your ABLE account, but there’s also a lot of flexibility.
  • Save up money without losing benefits. Many benefits programs have resource limits, but:
    • You can have up to $100,000 in your ABLE account and keep getting Supplemental Security Income (SSI) benefits, as long as you meet all other SSI rules. If you go over $100,000, SSI benefits will stop, but they will start up again if your ABLE account drops back below $100,000 and you won't have to reapply.
    • No matter how much you have in your ABLE account, the money in it won’t affect Medicaid, WorkFirst New Jersey, Medicaid's New Jersey WorkAbility program, NJ SNAP, and most other programs with resource limits.

The bottom line: An ABLE account means that you can save up money without losing your benefits. It also lets family and friends give you money without affecting your benefits.

Does your disability qualify?

You definitely qualify for an ABLE account if you get benefits like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits (CDB), Medicaid (based on your disability), or Medicaid's NJ WorkAbility program, because they all use SSA's disability standards. (SSA has different standards for children, for adults, and for blindness.) If you don’t get disability-based benefits, you may be able to “self-certify” that your disability meets SSA’s standards.

Opening an ABLE Account

An ABLE account is easy to set up, and you don't need a lawyer or other advisor. You can open your own ABLE account or, if needed, it can be opened for you by a parent, a legal guardian, or someone with a valid power of attorney.

Some states offer ABLE accounts and others don’t. New Jersey's ABLE account program is NJ ABLE.

If you qualify for an ABLE account, you can open one in any state that offers a nationwide program. Although you can only have one ABLE account at a time, you can switch your ABLE account from one state program to another. Compare the ABLE account options in different states.

Rules about ABLE Account Money

There are two limits on how much can be put in an ABLE account in a calendar year:

  • Up to $18,000 from any source (including your family and friends, your benefits, and other unearned income
  • Another $14,580 from your own earned income (if you have a job).
    • Note: If you or your employer make contributions to a retirement plan set up by your employer, you might not qualify for the extra ABLE contribution amount based on having a job (you can still make regular ABLE contributions). If you aren't sure about this, ask your ABLE account program or check with a tax expert. Get more information about this rule from the ABLE National Resource Center.

Note: This means that if you earn $14,580 or more, you could have a total of up to $32,580 go into your ABLE account in a year. If you earn less than $14,580, the amount you could contribute would be lower.

Important: You need to keep good records, to make sure that too much money isn’t put into your account.

The money in an ABLE account has to be used for certain qualified expenses, like daily living expenses, education, or housing. Many expenses qualify. It's your job to make sure an expense qualifies, and to keep records of how you use your ABLE account money.

If you take money out of an ABLE account but do not use it for qualified disability expenses, you might have to pay income tax on it plus a 10% penalty, and it could affect SSI and other benefits.

Sam gets SSI and Medicaid benefits. He doesn’t work, so he has no earned income. Sam’s mother helps him by putting $500 a month into Sam’s ABLE account. Sam’s done the math and knows that by the end of the year, his mother will have deposited a total of $6,000. Sam’s brother also helps out, by making a big $5,000 deposit into Sam’s ABLE account in February. Combined, his mother and brother will put $11,000 into Sam’s ABLE account over the course of the year. For the rest of the year, the most Sam or anyone else deposits can only add up to $7,000. Even if Sam spends $10,000 on qualified expenses by November and the balance in his ABLE account drops, only $7,000 can be added to the account until the end of the year.

State ABLE programs also have limits on the total amount in your account—typically $200,000 to $500,000, depending on the state. For example, a state program might say that if you have $400,000 in your ABLE account, you cannot deposit any more money.

For more information, the ABLE National Resource Center offers an overview of ABLE Accounts as well as online webinars about ABLE accounts.

ABLE accounts and Special Needs Trusts
An ABLE account:
  • Is easier (and cheaper) to open and manage than a trust
  • Provides tax benefits (as long as any money withdrawn is spent on qualified disability expenses)
  • Gives you more control and more choices
  • Lets you use the money for housing expenses without making SSI benefits go down.

A Special Needs Trust:

  • Has no limits on contributions
  • Does not require that your disability began before you turned 26
  • Any money left in the trust when you die does not have to be used to repay Medicaid, if the trust was set up by someone other than you (a Third Party Trust), with their money
  • The money in a Special Needs Trust does not have to be spent on qualified disability expenses

The bottom line: Because of the limits on contributions to an ABLE account, you cannot replace a trust with an ABLE account. Instead, use them both as part of your overall asset-building strategy.

If you have an ABLE account and work:
  • You can put up to an extra $14,580 of your earnings into your account (on top of the regular $18,000 that is allowed). The $14,580 must be from your own earnings – it cannot be contributions from others or money you get from benefits or other unearned income.
    • Note: This means that if you earn $14,580 or more, you could have a total of up to $32,580 go into your ABLE account in a year. If you earn less than $14,580, the amount you could contribute would be lower.
  • You may qualify for the Saver’s Credit when you file your federal taxes.
  • You have to make sure that too much money isn’t contributed into your account (even if it is other people making the deposits). Check with your ABLE program if you have questions about this.

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