Policy & Legislation > S.493

ABLE Act FAQs

    Tax Questions

  1. Do beneficiaries of ABLE Accounts pay any interest or taxes (federal or state) on assets accumulated within the account?

    Answer: There is no federal taxation on funds held in an ABLE Account. Assets can be accumulated, invested, grown and distributed free from federal taxes. Contributions to the accounts are made on an after-tax basis, but assets in the account grow tax free and are protected from tax as long as they are used to pay qualified expenses. Individual states will ultimately determine how the funds are treated for state taxation purposes. Similar types of accounts like college savings and IRA's have been exempted from state taxation.

  2. Are there any tax benefits for those who contribute to an ABLE Account?

    Answer: Beneficiaries that contribute to their own account can claim a tax deduction for contributions of up to $2,000 per year. The deduction is phased out for individuals earning more than $35,000 per year, heads of household earning more than $52,500, and joint filers earning more than $70,000.

  3. Allowable Expenses

  4. What are the allowable expenses that the funds accumulated in an ABLE Account can be used for?

    Answer: Funds can be used to support the following allowable expenses:

    • EDUCATION- Expenses for education, including tuition for preschool thru post-secondary education, books, supplies, and educational materials related to such education, tutors, and special education services.
    • HOUSING- Expenses for housing, including rent, mortgage payments, home improvements and modifications, maintenance and repairs, real property taxes, and utility charges.
    • TRANSPORTATION- Expenses for transportation, including the use of mass transit, the purchase or modification of vehicles, and moving expenses.
    • EMPLOYMENT SUPPORT- Expenses related to obtaining and maintaining employment, including job-related training, assistive technology, and personal assistance supports.
    • HEALTH, PREVENTION, AND WELLNESS- Expenses for health and wellness, including premiums for health insurance, medical, vision, and dental expenses, habilitation and rehabilitation services, durable medical equipment, therapy, respite care, long term services and supports, and nutritional management.
    • LIFE NECESSITIES- Expenses for life necessities, including: clothing; activities which are religious, cultural, or recreational; supplies and equipment for personal care; community-based supports; communication services and devices; adaptive equipment; assistive technology; personal assistance supports; financial management and administrative services; expenses for oversight, monitoring, or advocacy; funeral and burial expenses.
    • ASSISTIVE TECHNOLOGY AND PERSONAL SUPPORT SERVICES- Expenses for assistive technology and personal support with respect to any item described in clauses (i) through (vii).
    • OTHER APPROVED EXPENSES- Any other expenses which are approved by the Secretary under regulations and consistent with the purposes of this section.
  5. Are there any penalties for using funds accumulated through ABLE Accounts for non-allowable expenses?

    Answer: Any distribution for a non-allowable expense will be treated as taxable income to the beneficiary. Such distributions will also be subject to a 10% penalty if not returned within 60 days. Repeated abuse can result in the revocation of the benefits protection and tax advantages of the account.

  6. Asset Accumulation & Benefits Determination

  7. Can an individual with a disability work and maintain an ABLE account?

    Answer: Yes, as long as the individual meets the definition of disability irrespective of whether s/he is engaged in substantial gainful activity. In fact, ABLE account beneficiaries may earn above the SGA limits and have more than $2,000 in assets without losing the account.

  8. Can an individual with a disability contribute to these accounts from wages earned?

    Answer: Yes, after required taxes are paid, earnings may be contributed to the account, just as any other contribution.

  9. Do assets accumulated in ABLE Accounts count toward asset/income means-testing for determining eligibility into Federal benefits programs?

    Answer: Assets held in ABLE Accounts are specifically excluded from the income and assets tests used to determine eligibility. This includes the current SSI eligibility requirements that prohibit beneficiaries from having over $2000 in assets at any one time.

  10. Do assets accumulated in ABLE Accounts count toward asset/income means-testing for determining eligibility in State benefits programs?

    Answer: The bill(s) do not prohibit states from treating the accounts differently for programs funded FULLY with state funds.

  11. Are there any limits to the amount of funds that can be contributed to an ABLE Account during a certain period of time?

    Answer: There is a $500,000 lifetime cap on contributions and contributions cannot be made after a beneficiary turns 65 years old. The cap is subject to a yearly inflation adjustment. Assets held in the account may continue to grow after the account cannot accept additional contributions.

  12. Are there any restrictions on the number of ABLE accounts that can be used for one individual beneficiary?

    Answer: The current bill limits the beneficiary to 1 account.

  13. Ownership, Control & Administration Of Able Accounts

  14. Who controls the funds in an ABLE Account?

    Answer: When the account is established, the person(s) establishing the account can make that determination. The legislative language around this provision reads as follows: "The trustee is a bank as defined in section 408(n)), the designated beneficiary, a parent or guardian of the designated beneficiary, or a third-party appointed by the designated beneficiary or a parent or guardian of the designated beneficiary (including a family member of the designated beneficiary or an organization that administers pooled and special needs trusts) who demonstrates to the satisfaction of the Secretary that the manner in which that person will administer the trust will be consistent with the requirements of this section."

  15. What is the administrative process for opening and maintaining an ABLE Account?

    Answer: The administrative process around opening and maintaining an ABLE Account will be determined by the financial community based on the product they offer and the regulations issued by the treasury. The bill is primarily based on Coverdell educational savings accounts as a model, which are covered under section 530 of the Internal Revenue Code. We anticipate that the administrative process of opening an ABLE Account should be as easy as opening any other custodial account, Individual Retirement Account (IRA), or 529 College Savings Account.

  16. What are the administrative fees for opening and maintaining an ABLE Account?

    Answer: This could vary based on how the person opening the account structures it. If a parent is setting it up as a custodial account and controlling the assets it should be similar to a savings account or IRA account. If there is a third-party trustee involved, those fees and expenses would be negotiated.

  17. Eligibility Determination

  18. What are the age requirements for individual beneficiaries?

    Answer: There is no age requirement on beneficiaries. The only age based requirement in the bill pertains to contributions. Contributions cannot be made after the beneficiary reaches the age of 65.

  19. Are ABLE Accounts available to any individual with a disability? How is the term disability defined?

    Answer: One of the purposes of the legislation is to allow beneficiaries who work the opportunity to pay for extraordinary expenses incurred because of their disability. To achieve this goal, the definition of disability in the legislation is based on the current definition applied by the Social Security Administration, and the income, assets, and SGA (substantial gainful activity) provisions of the definition are disregarded. Disregarding these means tests from the definition of disability focuses the definition on the type and level of the beneficiary's physical or intellectual disabilities rather than the assets he or she controls, and it allows families and beneficiaries not on federal benefits to open the accounts.

  20. Able Accounts Compared To Other Savings Vehicles

  21. How do ABLE Accounts differ from other savings vehicles?

    Answer: Except for the special needs and pooled trusts, none of the other accounts listed below will provide benefits protection. Any funds held in a standard savings, IRA, educational savings or other type of account will be counted as income and assets against the beneficiary. This means they would NOT qualify for federal benefits until the funds were depleted. ABLE Accounts, like pooled trusts, require a Medicaid payback upon death of the beneficiary.

    • How do ABLE Accounts differ from 529 College Savings Accounts?
      Money that is saved in 529 accounts must be used for education. Any funds not used for education become fully taxable once removed from the account.
    • How do ABLE Accounts differ from IRAs?
      Funds held in IRA accounts cannot be accessed until a person reaches a specific age, normally 59 1/2 years old. ABLE account funds can be accessed throughout a beneficiary's lifetime.
    • How do the ABLE Accounts differ from special needs trusts?
      There are different advantages and disadvantages to trusts and ABLE Accounts. Special Needs Trusts are regulated at the state level and need to be reviewed and updated if a family moves to another state. Special needs trusts are taxed at the highest individual tax rate, and they can be expensive to set-up and maintain. Special needs trusts do not have contribution limits, and the allowed expenditures are not as limited as an ABLE Account. If a special needs trust is set-up as a 3rd party trust, then a Medicaid payback is not required.
    • How do ABLE Accounts differ from pooled trusts?
      Pooled trusts are fully taxable, require set-up and maintenance costs, and are regulated at the state level. A portion of the money left in the account after the beneficiary's death stays in the account for other participants before the Medicaid payback applies. There are no contribution limits and the allowed expenditures are broader than with an ABLE Account. Set-up and maintenance of pooled trusts are generally done by disability organizations. The set-up fees can be less expensive than special needs trusts and the organizations that maintain them are familiar with how the funds can be used on behalf of the beneficiary.
  22. Can an individual have an ABLE account and a special needs or a pooled trust?

    Answer: Yes, all are tools for providing disability-related supports and services to individual with a disability. Which ones work best or in combination will depend on individual circumstances.

  23. Issues Pertaining To Account Roll-Overs

  24. Can pre-existing savings accounts already established for an individual with a disability be rolled over into an ABLE Account?

    Answer: There are specific roll-over provisions included for 529 College Accounts, Coverdell Accounts, Health Savings Accounts, and parental IRA accounts. Other types of standard savings accounts don't have any up front restrictions that would prevent a roll-over. IRA and 401k accounts have provisions to allow withdrawal of money due to disability.

  25. Upon the death of a beneficiary, can ABLE Accounts be rolled over into an IRA to the spouse and/or dependents of the deceased?

    Answer: ABLE Accounts can be rolled over to another beneficiary without a taxable event if the new beneficiary is the spouse or another qualified individual. The roll-over will not count as a distribution.