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Save Funds to Care for a Disabled Child Using an ABLE Account


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Parents of disabled children face a number of challenges. One significant difficulty is ensuring that your child has enough money to pay for necessary care throughout his/her life. Previously, if you wished to establish a fund to care for a disabled child into adulthood, you had very few attractive options. Special-needs trusts are burdensome and heavy on fees. Government benefits help but of course are limited. Finally, there's some good news: the ABLE account.

Enacted in 2014, the Achieving a Better Life Experience (ABLE) Act allows for the creation of tax-free savings accounts used to pay for the care of a disabled individual. Some of the key highlights of ABLE accounts are:

  • They are built the same as 529 college savings accounts.

  • Families can set aside $14,000 per year for care expenses, to a maximum account value of $100,000.

  • They earn interest tax-free.

  • Qualified withdrawals are not taxed.

  • The government does not include up to $100,000 in an ABLE account when bestowing government benefits.

Using an ABLE account

To be eligible for an ABLE account, an individual must have become blind or disabled before age 26 and receive social security disability insurance (SSDI) or file a disability certification with the Internal Revenue Service (IRS).

An ABLE account resides in the name of its beneficiary (the disabled individual), allowing the individual control over the funds. Account owners can write checks or use a debit card to pay for qualified expenses from the account.

Qualified ABLE account expenses

The Social Security Administration decides on qualified disability expenses, but here are some common expenses a disabled individual can pay for with an ABLE account:

  • Housing

  • Transportation

  • Education/job training

  • Assistive technology

  • Medical costs

  • Legal costs

  • Funeral/burial

Limits on ABLE account savings

As I stated above, families can save $14,000 per year in an ABLE account, to a maximum account value of $100,000. You want to make sure an account does not surpass that $100,000 limit, because if it does, the account owner will not be eligible for government benefits like Medicaid or SSDI until the account total falls below $100,000.

In addition, the U.S. government monitors Medicaid spending. When an ABLE account holder dies, Medicaid will bill that individual's ABLE account for medical expenses paid by Medicaid. Once Medicaid has settled up, any remaining funds will be distributed as the account holder directed.

You have enough worry, work, and expenses caring for a disabled child. Take advantage of an ABLE account to save on taxes and worry, and rest assured that you've provided for your child's future needs.

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