Welcome to the second part in our five part series on ABLE accounts. The first part explained what ABLE accounts are. In this part, we’ll discuss who may want to consider opening an ABLE account.
What is an ABLE account?
Before 2015, blind people who received Supplemental Security Income (SSI), Medicaid, or other government benefits, were only allowed to have up to $2000 in savings to cover emergencies. This all changed with the passage of the Stephen J. Beck Jr. Achieving A Better Life Experience Act of 2014. The law allows states to establish tax-advantaged investment accounts that people with disabilities can use to save to pay for disability-related expenses including housing, transportation, medical expenses, education, and more. SSI and Medicaid recipients can save up to $100,000 in an ABLE account without impacting their benefits. The money they save can come from themselves, their employer, and their friends and relatives.
Who should consider opening an ABLE account?
You may want to consider opening an ABLE account if:
You are a parent of a child who is legally blind
One of the best gifts any parent can give a child is a regular (monthly or bi-weekly)contribution to a tax-advantaged investment account. Some options for nondisabled children include Roth IRAs and 529 college savings plans. For children who are blind, an ABLE account may be an even better choice, whether or not they are, or ever will be, receiving any government benefits.
An ABLE account can be used to pay for college, just like a 529 college savings plan. It can be used to pay for the child’s eventual retirement, just like a Roth IRA. It can also be used to pay for any other qualifying disability-related expenses. At the time this was written, the IRS is operating under proposed rules that very broadly define disability-related expenses so your child will have lots of options.
The following table shows you how much your child will have if you contribute a small amount each month until she turns 26 and her ABLE account earns a reasonable interest rate:
Don’t ever sacrifice your retirement to save for your child. If you are able to set aside even a small amount, however, your child will have more freedom. She may be able to afford to choose where she lives, how she gets to school or work, what type of college education she receives, and which assistive technology options she has available to her to effectively participate in the community.
You are a person who became legally blind before you turned 26
Saving large amounts of money takes time. So much time that we often assume that it’s not worth saving at all. This is why adults often don’t start contributing to retirement accounts until they’re in their 30s or 40s when they have a lot less time to save.
A popular statistic says that about 70 percent of people who are blind are unemployed. There isn’t a lot of data, though, on what happens to the 30 percent who are employed, but it’s probably safe to say that if an employed blind person loses her job, she has a greater chance of being unemployed for a longer period of time than a sighted person of the same age. It’s probably also safe to assume that job opportunities for people who are blind are less plentiful, meaning that a blind person looking for work may be forced to move in order to take a job.
As you get older, it gets even harder. There is a lot of data that shows that sighted people find it harder to find jobs after they turn 50. Many people end up having to move across the country, only to take a lower paying job, if they lose their job when they’re older, but not in a position to retire. An older person who is blind may not even be able to make that choice. In other words, being blind and employed is hard, and probably more expensive too.
If you believe the above, then you may also believe that it’s wise to save aggressively for an emergency or even an early retirement. Social Security Disability Insurance (SSDI) may be a part of your emergency plan, but it takes at least six months to get on SSDI after you’ve stopped working, and your SSDI check will only replace around 40 percent of the income you earned while you were working. If you want to bridge that gap and maintain the same lifestyle you enjoyed while you were working, you need a savings plan that sets enough money aside to achieve that goal. An ABLE account may be a valuable component of that plan.
Who Can Contribute To An ABLE Account
Contributions to an ABLE account can come from the blind person herself (the beneficiary), her friends and family, or from her employer. The contributor will pay taxes on the money she contributes, just like she would if she spent that money another way, but the beneficiary will not pay taxes when she spends money from her ABLE account.
Who can spend the money in an ABLE account?
The blind person herself (the beneficiary) can spend the money in her ABLE account. She must be careful, though, to spend the money on qualifying disability-related expenses. She doesn’t need to be overly concerned about this, though, because lots of expenses, such as her rent or mortgage payment, qualify. She will not pay taxes on money she withdraws to pay for qualifying expenses, and her SSI and Medicaid benefits will not be impacted.
Who can tell me more?
In The next part of our series on ABLE Accounts, we’ll discuss why you may want to consider opening one. The ABLE National Resource Center provides a great deal of information on ABLE accounts. It also provides information about, and links to, all of the state ABLE account programs available. It can be complicated to navigate, but it is generally accessible with a screen reader.
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