Estate Planning

Planning for Special Circumstances

Frequently Asked Questions About Texas ABLE Accounts

by Rania Combs

Barrack Obama signed the Achieving a Better Life Experience “(ABLE”) Act into on December 19, 2014. It requires each state to pass its own ABLE Act. Governor Greg Abbott signed the Texas ABLE Act on June 19, 2015.

The ABLE Act creates an option for eligible people with disabilities to save money in a tax-exempt account while preserving their eligibility for federal public benefits.

Why Are ABLE Accounts A Big Deal?

Millions of people with disabilities rely on public benefits such as Supplemental Security Income (SSI) and Medicaid. These benefits are means-tested, which means that those with countable assets greater than $2,000 can lose their eligibility to receive these benefits, which requires people receiving these benefits to remain poor.

The ABLE Act allows eligible individuals and their families to establish ABLE savings accounts that will not be counted for purposes of eligibility. Because funds in an ABLE account are not counted for purposes of determining eligibility for means-tested benefits, Americans with disabilities can have a financial cushion to pay for qualified disability expenses while preserving their eligibility for Medicaid and SSI, and other public benefits

Who Is Eligible To Be An ABLE Account Beneficiary?

Not everyone can have an ABLE account. To be eligible, individuals must meet two requirements:

  • The beneficiary’s onset of the disability must have occurred before the beneficiary’s 26th birthday; and
  • The beneficiary must either meet the disability requirement for Supplemental Security Income (SSI) or Social Security disability benefits and are receiving those benefits or submit a “disability certification” from a licensed physician confirming that the individual meets the disability criteria in the ABLE Act.

Only those whose onset of disability occurred before age 26 are eligible to start an account. This does not mean that those over 26 cannot open an account. Even those over 26 can open an ABLE account as long as the onset of their disability occurred before their 26th birthday.

Who Can Open and Contribute To ABLE Accounts?

A parent or guardian, or a power of attorney for an individual can open an ABLE account for the individual. Anyone, including friends, family, or even the individual can contribute to the account; however, there is a $18,000 annual combined contribution limit in 2024.

That does not mean that multiple people can give $18,000 per year. The total combined gifts made to any ABLE beneficiary cannot exceed $18,000 per year. The maximum amount that can be contributed annually may be periodically adjusted to account for inflation.

Additionally, some ABLE account owners who work can contribute funds to their ABLE account in excess of the $18,000 annual contribution limit if they do not have an employer-sponsored retirement plan. In 2023, the maximum that can be contributed is $14,580.

What Can An ABLE Account Pay For?

ABLE accounts can be used for Qualified Disability Expenses. The ABLE Act defines “qualified disability expenses” as “expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.”  It also lists a range of potential expenses that can be paid for from funds set aside in ABLE accounts including:

“Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.”

The IRS has indicated that the term “qualified disability expenses” should be “broadly construed” to include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”

Who Owns An ABLE Account?

The eligible person with a disability, known as the designated beneficiary of the ABLE account, is the owner of the account and decides how the money should be spent. A disabled person who does not have the capacity or desire to exercise authority over the account, another authorized legal representative, such as a parent, guardian, or a power of attorney, can do so.

How Much Can Be Saved In An ABLE Account?

The maximum lifetime contribution limit is $370,000, but if the account balance exceeds $100,000, the beneficiary’s eligibility for SSI may be suspended until such time as the account falls back below $100,000. However, even though the beneficiary’s eligibility for SSI is suspended, the beneficiary will continue to be eligible to receive medical assistance through Medicaid.

Are Contributions or Withdrawals From ABLE Accounts Taxed?

Although contributions to ABLE accounts are not deductible for federal income tax purposes, income earned on the funds invested in an ABLE account is not subject to federal income taxes until they are distributed. Additionally, distributions made for qualified disability expenses are tax exempt.

What Happens To Funds When The Beneficiary Dies?

When the beneficiary of an ABLE account dies, funds from an ABLE account can be used to repay outstanding qualified medical expenses and funeral or burial costs.

If the beneficiary was receiving Medicaid benefits, Medicaid can file a claim to recoup Medicaid-related expenses spent on the beneficiary through the Medicaid program from the inception of the account.

Any remaining funds can be distributed to a remainder beneficiary identified in the account documents, or if a beneficiary is not identified, then to the beneficiary’s estate. If the beneficiary has left a Will, the Will controls how the funds will be distributed. If the beneficiary dies without a Will, then the Texas Intestacy Statutes will control.

To find out more about the program, read the Texas ABLE Program Disclosure Statement and Participation Agreement(pdf).

This article was originally published on February 6, 2019, and updated on January 27, 2023.

About Rania

Rania graduated magna cum laude from South Texas College of Law Houston and is the founder of Rania Combs Law, PLLC. She has been licensed to practice law since 1994 and enjoys helping clients in Texas and North Carolina create estate plans that give them peace of mind.

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