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Taking Care of Family with Special Needs: ABLE Accounts

| June 30, 2021

By Kristi De Rycke, Registered Assistant

Assisting with finances for those with disabilities is a topic that is very close to my heart.  Autism Spectrum Disorders are clearly on the rise to 1 out of every 59 kids in 2018 per Autism website.  The cause is still very much unknown.  This does not include the children born with Cerebral Palsy, Down Syndrome, various genetic variations and many other childhood complications.  There are many services to assist these children to develop and grow but many will continue to need help and support through their adult lives.  Adults also suddenly become disabled through injury, accidents or illness.  There are services to assist with the expenses including social security, SNAP and Medicaid.  However, when a person is receiving these services, they are not allowed to have more than $2000 in assets to remain eligible.  We are all supposed to put away money for an emergency fund and this is more important for individuals with greater financial needs. They are more likely to have higher costs for health care, medical equipment, assistive technology and supervision and assistance with everyday tasks into adulthood.  $2000 is clearly not enough for their emergency fund.   

In 2014 Congress passed the Achieving a Better Life Act or ABLE.  This allows individuals and family or friends to save more for those with special needs.  It turns out they are able to save a lot more with a maximum of $100,000 if they qualify for social security benefits.  If the account goes above $100,000 the social security benefits are suspended until the account falls back below $100,000.  This suspension does not affect Medicare or Medicaid benefits.   Other states have a maximum of up to $300,000.  Just because you live in Iowa doesn’t mean that you have to take out an Iowa ABLE account but be aware that it may not be deducted from state taxes if you take out an ABLE account in another state.   A person is eligible if they had the age of onset of the illness prior to 26 years of age and has one of the following: qualifies for social security, is blind or has a similar disability that is certified by a physician.  The individual as well as their family and friends can contribute a minimum of $25 per contribution up to $15,000 annually.  This amount adjust upward in conjunction with the requirements on the gift tax. 

The money that has been saved in this account is made with after tax dollars and will grow tax free and has no tax at the time of taking it out if it is used for qualified expenses.  The money can then be used for education, housing, transportation, employment training, assistive technology, personal support services, healthcare expenses, financial management and other expenses that improve health, independence and quality of life.  However, if the money is used for a non-qualified expense, it may be subject to federal income tax and a 10% federal penalty.

For Iowa ABLE accounts the money can be invested in 6 different investment options based on risk.  You can change the option the new money is going into at any time.  You can adjust the entire account twice yearly. 

One thing to know is that if the beneficiary passes away with money left in the account, the state of residence may file a claim on all or part of the balance known as the Medicaid payback provision.  The state can then recoup some of the Medicaid expenses from the time the account was opened.  The account owner is the beneficiary.  They can act on their own behalf or designate additional individuals to account on their behalf.  If you child is under 18, the parent requires no additional documentation.  If the beneficiary is 18 or older, you must provide the legal document that you can act in their behalf.  This is true about requiring legal documentation also if the beneficiary lacks capacity to act in their own behalf.

This type of account can be set up instead of or in addition to a special needs trust.    I will discuss special needs trusts in the next article.  In general ABLE accounts are easier to establish, work only if disability occurred prior to age 26, have contribution limits, grow tax free and may be taken back by the state to cover Medicaid and SSI benefits that had been covered. 

This information was found on and

By Greg Johnson

I have not had much experience with using ABLE accounts, but my recommendation would be to manage them wisely.  Do not put too much into the account at any one given time and take distributions regularly to provide the best quality of life you can for your loved ones.  The tax advantages can certainly play a part in your contributions, but I would be careful not to leave too much in the account for the state to recover.  Children with disabilities deserve all the love and care they can, so taking advantage of these programs can be extremely useful.  Work with an advisor who has experience in dealing with situations to determine whether it is the right plan for your family.