In honor of Autism Acceptance Month, Femme Frugality will be hosting a series of Monday articles that focus on the financial challenges and triumphs that autistic people face and achieve. When they are children, these things also tend to affect their family’s finances, as well.
If you are on the autism spectrum, or your child is on the spectrum, it’s likely that you incur some costs that neurotypical people simply don’t. There may be therapies, adaptive equipment, nutritional supplements or even legal fees related to autism that end up in your budget.
Fortunately, in recent years these financial burdens have been acknowledged. With the passage of the ABLE Act, people with qualified “disabilities”–or their guardians–now have the ability to open an account built specifically to deal with these added expenses.
I was incredibly psyched when an advisor let me know Pennsylvania was rolling out theirs last year. Since PA is the state I’m most familiar with, the PA ABLE account will be the one we dissect today, but other states have similar options. You can view them at the end of this article.
What is an ABLE account?
An ABLE account is a tax-advantaged investment account. It serves as a way for those with “disabilities” to save for expenses related to their condition–in this case, autism. Families are also able to save for their minor children in this way, or through a power of attorney if their child is an adult in need of assistance.
ABLE accounts are 529 accounts, which means that most of the time the money you put in them is invested. If you’re familiar with these accounts for college savings, it’s a very similar thing except the scope of qualified expenses extends beyond just post-secondary education.
ABLE accounts are also advantageous because they don’t count against many state or federal programs that require asset tests, allowing people on the spectrum to save for future costs without worrying about losing their healthcare or other necessities.
How do you qualify for an ABLE account?
If you live in Pennsylvania, you’ve likely gone through the rigamarole of applying for SSI so you can get on Medicaid. If your income is low enough, you get SSI payments. If it’s too high, you don’t get the SSI payments, but SSI confirms that you have a disability so you can get state-sponsored insurance.
If your autism has been confirmed by SSI, you qualify. Other ways you can qualify are through entitlement to SSDI or a signed confirmation of disability from a physician. They must also certify that you received your diagnosis before age 26.
What is a qualified expense for an ABLE account?
In Pennsylvania, qualified expenses are any expense related to the “disability.” That includes:
- Tuition for school–Pre-K through post-secondary
- Books and other supplies related to education
- Mass transit expenses
- Purchase of a vehicle
- Modification of a vehicle
- Moving expenses
- Job training
- Expenses related to gaining/maintaining employment
- Health expenses across the realms of mental, physical, vision and dental
- Health insurance premiums
- Durable medical equipment
- Respite care
- Communication services/devices
- Personal assistance
- Nutrition management
- Financial management
- Legal fees
- Funeral and burial expenses
In addition, you can use it for these housing-related expenses tax free, though withdrawing money for any of the below may impact your SSI benefits:
- Primary residence expenses
- Mortgage payments
- Property taxes
- Home improvements or modifications
This is by no means an exhaustive list. You can use the money for anything related to the associated “disability,” and it doesn’t necessarily have to be deemed medically necessary. Just remember to keep good documentation about what you’ve spent the money on. If the IRS ever audits you, they’re going to want to see receipts.
How much can I save in an ABLE account?
You can save $15,000 per year. If you have family or friends that want to contribute, their generosity counts towards that $15,000. There are some federal exceptions to this cap–for example, if you bring in income, you’re allowed to save more–but states are still trying to work out their own rules which may be more restrictive than the federal policy, which just changed at the tail end of 2017.
The max amount you can have in an ABLE account at any given time is $511,758 in the state of Pennsylvania. This max number will vary from state to state. If you are a parent or guardian who is saving for a child, once you reach this point you may want to talk to a professional about a trust or even a special needs trust.
What are the tax advantages of saving in an ABLE account?
You contribute money after you’ve already paid taxes, so contributions won’t lower your AGI on your taxes. However, the money is allowed to grow tax-free, and as long as your withdrawals are made for qualified expenses, you won’t have to pay taxes when you take the money out.
If you spend the money on an unqualified expense, though, you will be hit with a penalty.
With the new tax law, you will be able to apply your ABLE contributions to the federal Savers Credit. The details are still fuzzy, and there may be some retrictions, but this is actually one good aspect of the legislation, which has otherwise set into motion threats to the health and well-being of the disabled.
You don’t necessarily have to live in a state to purchase its plan. For example, PA ABLE is available to people in all 50 states–not just Pennsylvania. On this particular plan, you might end up paying state taxes on your gains if you’re from out of state. Pennsylvania residents are exempt, and also won’t pay state taxes upon a qualified withdrawal.
Pennsylvania residents also benefit from exemption from the PA inheritance tax. Check with your state to see what benefits may be available.
Will an ABLE account mess up my state or federal benefits?
ABLE accounts are not considered for SNAP benefits or any other federally-distributed benefits with means-based tests, save for SSI.
Typically, SSI limits your assets to $2,000, but ABLE accounts are a little different. They won’t count the first $100,000 in your ABLE account against you for SSI qualification or the determination of your dollar-amount benefits.
Separately, the state of Pennsylvania has passed legislation that prohibits your ABLE balance from being used in any asset tests related to health or disability. They’re also not allowed to use it for SNAP per the USDA’s issued guidelines.
What about financial aid for college?
In the state of Pennsylvania, PA ABLE savings will not count on applications for state-based financial aid.
Because ABLE accounts are not supposed to be counted on federal means-based tests, the general assumption is that these savings should not be included on the FAFSA. However, as far as can be told the US Department of Education has not issued any guidance on this to date. You may want to call the Federal Student Aid Information Center to get the most up-to-date information.
Do not count ABLE savings on other children’s FAFSA applications.
What are the fees?
You can avoid all administrative fees by getting your documents delivered electronically. Investment fees are between 0.34% and 0.38% depending on which option you pick.
Picking an option–from conservative to agressive–is something we’ll be tackling in a future post. Saving for college with a 529 is one thing, but saving for expenses related to autism that come up as a part of your daily life is quite another all together.
Rent isn’t something you’ll be paying in 30 years–it’s something that’s due now. If you need an iPad to communicate, you’re not going to wait for 15 years of appreciation on your investment before you start to exchange information with the world.
But that isn’t to say the most conservative option is the best choice each and every time. It’s complex, and something we brought an expert in to cover.
Are ABLE accounts worth it?
While the fees may not be the lowest, the account is tax-advantaged and allows you to use your money before retirement age. It also allows you to save for future expenses without disqualifying yourself from certain federal and state means-tested benefits.
If you’re a parent, you may not be sure if your child will go to college or not. An ABLE account gives them the flexibility to pursue whatever occupational or educational path they want and are able to when they get to that point in their life.
Or, if you come up against a financial emergency between now and then because of your child’s medical, communication or educational needs, you have the money there to save you from financial distress while still providing the best for your kid.
Overall, it’s a much-needed solution that many individuals and families will be able to use to their advantage. With so many frustrating lines of red tape around every corner, it’s good to see that this issue is getting some recognition and legislation.
Other states with ABLE accounts
Note that not all state plans are created equally. Don’t pick a plan simply because it is based in your state or think that because your state doesn’t offer a plan, you’re not eligible. Fees, residency requirements and state tax advantages are all going to vary. Do further research before opening any financial account.
- Alabama: Enable Savings Plan Alabama
- Alaska: Alaska ABLE Plan
- Arizona: AZ ABLE
- Colorado: coloradoABLE
- District of Columbia: DC ABLE
- Florida: ABLE United
- Georgia: Georgia STABLE
- Illinois: Illinois ABLE
- Indiana: INvestABLE
- Iowa: IAble
- Kansas: Kansas ABLE Savings Plan
- Kentucky: STABLE Kentucky
- Louisiana: LA ABLE
- Maryland: MarylandABLE
- Massachusetts: The Attainable Savings Plan
- Michigan: MiABLE
- Minnesota: Minnesota ABLE Plan
- Missouri: MO ABLE
- Montana: Montana ABLE
- Nebraska: Enable Savings Plan
- Nevada: ABLE Nevada
- New Hampshire: STABLE NH
- New Mexico: ABLE New Mexico
- New York: NY ABLE
- North Carolina: NC ABLE
- Ohio: STABLE Account
- Oregon: Oregon ABLE Savings Plan
- Rhode Island: RI’s ABLE
- South Carolina: SC ABLE
- Tennessee: ABLE TN
- Vermont: STABLE Account
- Virginia: ABLEnow
- West Virginia: WVABLE
- Wyoming: WYABLE