Save Money with a New ABLE Account

By September 1, 2015Benefits

On December 19, 2014 Obama signed the Achieving Better Life Experience Act (ABLE Act), which created a new type of tax-free saving account to benefit disabled Americans. The new accounts are modeled on 529 college savings accounts. We explained the new law earlier this year, but now it is time for an update.

On March 20th, 2015 Utah became the third state to pass a law that sets up a statewide system for these new accounts. If you or a love one is disabled, you may be able to save money with this new program.

Do I Qualify?The word save spelled with scrabble letters on dollar bills

The beneficiary of each ABLE account must have a disability that meets certain criteria:

  • The disability must be diagnosed before the age of 26, and
  • The beneficiary must be receiving or deemed to be receiving Social Security Disability benefits or Supplemental Security benefits, or
  • A physician must certify that the beneficiary suffers from a severe disability that is expected to end in death or last more than 12 months

If the beneficiary meets these criteria, an account can be created in his or her name, either by the beneficiary or by another contributor. Only one account can be created per eligible beneficiary.

What are the Benefits?

The federal law guarantees certain benefits for all states who participate in the ABLE Act:

  • Tax-free growth in ABLE accounts
  • Up to $100,000 in savings in an ABLE account, not counting towards the $2,000 savings cap for SSDI recipients
  • Contributions up to $14,000 per year can be deposited in the account

Utah’s Law

Utah is one of the first states to adopt this new program, and the Utah law even contains a provision for extending its program to contracting states who have not established ABLE programs of their own.

Utah is leading the way in establishing a system for administering the new ABLE accounts, but the new law also goes further. The Utah law adds a tax credit for contributions on top of the benefits guaranteed in the federal law. Contributors to ABLE accounts receive tax credit equal to 5% of their contribution.

Although federal law allows the money in the accounts to grow tax-free, it makes no provision for tax credits on contributions. This option was left open to the states as they enact their own corresponding legislation. This means that the ABLE program is especially beneficial in Utah. Disabled Utahns and their families should seriously consider taking advantage of this new program.

One important note: although most of the act is already in effect, the provision for tax credits comes into effect on January 1st, 2016.

What Can I Use the Money For?

The money in an ABLE account must be used for the benefit of the beneficiary for an expense related to his or her disability. A wide variety of expenses fall under this heading. They can include things like treatment, transportation, and assistive technology, as well as education and housing costs. Any type of expense that is linked to disability should be eligible, but the Department of the Treasury is still developing the exact rules.


Image by 401(K) 2012 via Flickr