Living with a disability comes with all kinds of challenges, but the financial impact of being unable to work can be absolutely devastating. Imagine not being able to support yourself due to your disability, but also not being able to save money so you can continue qualifying for government aid including Supplemental Security Income (SSI).
To qualify for SSI, your countable resources must not be worth more than $2,000 for an individual or $3,000 for a couple. No matter how you cut it, that’s not very much.
This situation creates a kind of forced poverty for many individuals with a disability and the family members who care for them. But many experts say that the 529 ABLE Account, which was first introduced in 2014, can help curb this ongoing problem.
According to the Internal Revenue Service (IRS), 529 ABLE Accounts were introduced as part of The Achieving a Better Life Experience (ABLE) Act. This act was created so states could set up tax-advantaged savings accounts that let eligible people with disabilities save for qualified expenses. Not only are contributions to 529 ABLE Accounts tax-advantaged, but distributions from can be taken tax-free if funds are used to cover expenses associated with a disability (which can be very broad).
Contribution limits are extremely generous. With a 529 ABLE Account, individuals with disabilities are able to save up to $15,000 per year in 2019. On top of that, a designated beneficiary who works can contribute their income up to the poverty line for a one-person household, notes the IRS.
The beneficiary cannot contribute any of their own income if an employer contributed on their behalf to a 401(1) defined contribution plan, a 403(a) annuity contract, a 403(b) annuity contract, or a 457(b) deferred compensation plan, however.
This means that individuals with a disability (and their families) can use these accounts to set aside tax-advantaged funds to help pay for items like personal support services, basic living expenses, wellness, transportation, and more. Money saved in a 529 ABLE account can even be used for housing expenses.
How 529 ABLE Accounts Help Families Save
According to Brynne Conroy, award-nominated author and coordinator of Personal Finance by Women, forced poverty of the disabled community is a multi-pronged problem that could potentially be solved — at least somewhat — for disabled individuals who have access to money they could save.
With a 529 ABLE account, families can build up savings of up to $100,000 without it counting toward the asset threshold for SSI. This means individuals with a disability do not have to live in forced poverty if they have some resources. With a 529 ABLE account, they could stash money away for the future and pay for qualified expenses associated with their disability all along the way.
Also keep in mind that asset tests aren’t only applied to SSI. Some states also require asset tests to qualify for food stamps or certain health benefits like Medicaid. Having access to a 529 ABLE account means families with a disabled member have a way to save money for ongoing costs without disqualifying themselves for other types of help.
“There are still other problems for the disabled community, though,” says Conroy, adding that income limits perpetually keep disabled individuals from pursuing their dreams.
Still, getting ABLE accounts established was a major step in the right direction. The next step is getting the word out about these accounts and getting those who qualify to sign up and start contributing.
Who Should Consider A 529 ABLE Account?
To qualify for a 529 ABLE Account, you must be a disabled person who was diagnosed with a disability before you turned 26-years-old. If you fall into that category or a disabled family member does, there’s a good chance a 529 ABLE Account could be a real possibility for you.
Here are some other signs a 529 ABLE Account might work in your situation:
You want to get your disabled child on Medicaid but can’t due to having a $10,000 emergency fund. Prior to ABLE accounts, you would have had to forgo your child’s healthcare, take on huge healthcare bills yourself, or arbitrarily spend down your emergency fund whenever it got close to asset test limits, says Conroy.
“Now you can just put that money in a 529 ABLE Account and pull it out as it is needed for anything related to the quality of life of your child,” she says. “The definition of a qualified expense is purposefully broad.”
You are an adult who has a job with great health benefits and are disabled, but would like to put away $15,000 per year tax-free. “You can then spend down your account on anything related to your own quality of life, including things like housing,” says Conroy.
If you had a steady income and plenty leftover to save, you could also use the 529 ABLE account to build up up to $100,000 in savings that could help you in leaner times.
You are crowdfunding to raise money for a disability-related project. Many individuals with a disability rely on support from friends and family to help provide for bigger projects - such as a wheelchair ramp or other housing retrofit. Setting up a 529 Able account to receive these funds is a great way to ensure that SSI isn’t impacted by the fundraising involved.
How Do You Sign Up?
If you believe you qualify to open a 529 ABLE account, you’ll need to go through your state. That’s because each individual state runs and operates their own 529 ABLE account, and some even offer state tax credits for those who contribute.
SavingforCollege.com offers a great resource on individual state 529 ABLE plans and their parameters. They also include information on how and where to sign up, as well as any state tax credits you may be eligible for.
If you’re on the fence about opening a 529 ABLE account, keep in mind that you have little to lose and a whole lot to gain. You have to pay for food, housing, and healthcare anyway, so you might as well funnel the money through a tax-advantaged account. And if you’re able to build up your account over the years, you can keep up to $100,000 in a 529 ABLE account without becoming disqualified for SSI.
This account doesn’t offer the perfect solution for people with disabilities, but it is absolutely better than nothing. To get any benefit, however, you have to open and account and start saving.
Original post found here.