In honor of Autism Acceptance Month, Femme Frugality will be hosting a series of Wednesday articles that focus on the financial challenges and triumphs that Autistic poeple face and achieve. While this series is for Autism Acceptance Month, the following information applies to everyone with a disability diagnosed before age 26. Any dollar amounts referenced are for the 2020 tax year.
If you have a disability, the state often disallows you from doing things like building an emergency fund. They prevent you from doing so via asset tests.
Asset tests can prevent you from getting anything from SNAP benefits to Medicaid access.
Luckily, you can get around this asinine hindrance by keeping your money in an ABLE account — a 529 account which shelters your savings from asset tests. An ABLE account also allows your money to grow tax fee.
Qualified withdrawals from ABLE accounts are quite generous compared to a typical 529 account; you can pull money out for anything related to the disabled person’s life without penalty.
The amount you can save in an ABLE account annually is typically limited. But some employed adults can almost double these limits due to legislation called ABLE to Work.
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How much can you normally save in an ABLE Account?
Typically, you can save $15,000/year in an ABLE account. Anyone can contribute towards this $15,000 max. It doesn’t matter if it’s you saving, or family and friends contributing towards your account.
How much extra can you save with ABLE to Work?
ABLE to Work is legislation that allows disabled adults with a job to stow away a little extra cash every year.
If you work a job and have an ABLE Account in your own name, you can save over the $15,000 limit with this legislation.
“The contribution limits for ABLE accounts and rules around ABLE accounts are determined by IRS codes,” explains Tricia Rosen of Access Financial Planning.
“The Tax Cuts and Jobs Act of 2017 made significant changes to ABLE accounts. It’s important to keep in mind the provisions of TCJA are only effective through December 31, 2025 at this time.”
So just how much extra can you save with the temporary TCJA changes under ABLE to Work?
That depends on how much you bring in.
Technically, you can save up to the federal poverty line. In 2021, that’s an additional $12,760 if you’re in the contiguous US. In Hawaii, the limit is $14,680. In Alaska, it’s $15,950.
If you don’t make that much per year through your job, you can’t put that much in. The max you’re allowed to put in is up to your total annual earnings — as long as those earnings are below the federal poverty line where you live.
What’s the catch?
Yes, there is a catch.
You can only save the extra ABLE to Work amount if you do not participate in an employee-sponsored retirement plan.
Technically, defined contribution plans disqualify you. You might have a defined contribution plan if:
- The savings burden is put on you as an employee rather than guaranteed by your employer — even though the plan is offered by an employer.
- The amount you will have to withdraw in retirement is dependent upon your individual savings within this retirement account — combined with market performance.
Some common examples of defined contribution plans that would disqualify you from saving more with ABLE to Work include:
- SEP IRA
Pension plans don’t count.
However, if you have a defined benefit plan through your employer — such as a pension — you qualify. You will be allowed to save the additional sum every year through ABLE to Work.
At least through 2025.
What if I have an ABLE Account across state lines?
What happens if you live in North Dakota but open an ABLE account from the state of Alaska?
Or live in Hawaii but open an ABLE account from the state of Iowa?
The additional amount you’re allowed to save is entirely dependent on your state of residence — not the state that administers your ABLE account.
That means the North Dakota resident is only allowed to save an additional $12,760. Even if they have an ABLE account from Alaska.
The Hawaii resident, however, would be allowed to save up to an additional $14,680. Even though their plan comes from Iowa in the contiguous United States.
What is the total amount you can save with ABLE to Work?
In 2021, the max allowable contributions including ABLE to Work are:
- Contiguous US: $27,760
- Hawaii: $29,680
- Alaska: $30,950
Remember that if you earn less than the federal poverty line in any given year, your max allowable contribution amount will be less than the maxes available under ABLE to Work.
Additional Tax Benefits of ABLE to Work Act
The ABLE to Work Act — embedded in the TCJA — also allows you to count your first $2,000 of savings in an ABLE account towards the Savers Credit. This credit is typically reserved only for select retirement accounts. But until 2025, ABLE accounts make the cut.
As an individual tax filer, the max credit you could get would be $1,000 if you saved at least $2,000 in an eligible account. The amount doubles if you’re married and your spouse is doing the same thing.
This credit — which can be up to $1,000 — is non-refundable.
Non-refundable credits mean that if you owe the government $0, you can’t cash out the rest of your credit. It can reduce your tax, but it won’t get you cash in your pocket in and of itself.
529 rollovers are temporarily allowed. Well, kind of.
Many families can now also rollover funds from 529 accounts into an ABLE account, but they do have to meet certain requirements.
The real buzzkill on the 529 rollover change is that when you roll the funds over, they count as contributions for the year. So if you rolled over $15,000, you’d be able to contribute $0 more to your child’s ABLE account that year.
ABLE vs SSI Requirements
When your ABLE account exceeds $100,000 in total assets, it will start counting towards SSI asset tests. The max amount you can save in your account total varies by state.
It’s also important to note that SSI requirements are different from ABLE account requirements. SSI runs off of rules set by the SSA while ABLE is in the domain of the IRS. There may be instances where maxing out your ABLE account is detrimental to SSI or other state-administered benefits.
Always be careful to protect your benefits.
ABLE accounts are a great tool and a step in the right direction, but they do not solve all of the systemic financial obstacles the disability community faces.