Texas ABLE Accounts

ABLE Accounts were established under The ABLE Act is a provision of the 529 section of the IRS code, the same section that brought us 529 College Savings Plans.

Texas ABLE Accounts allow money to be set aside for a person with special needs. This money can grow tax-free over time and is used to pay for qualifying expenses toward the care and support of the individual.

What is an ABLE Account?

ABLE stands for Achieving a Better Life Experience. A Texas ABLE account is a savings account that is not counted as an asset.

An ABLE account is an important tool in a holistic approach to special needs planning.

Who is eligible for a Texas ABLE account?

A person with a significant disability that was diagnosed before the person turned 26 years old, regardless of the person’s current age, is eligible for a Texas ABLE account. A person with a disability who qualifies for SSI or SSDI can use that eligibility for determining eligibility for an ABLE account. If a person with a disability is not eligible for SSI or SSDI, there is a certification process to determine eligibility.

Who can open an account?

The person with a disability, family members, guardians, or someone holding Power of Attorney for the person with a disability.

What can an the accounts pay for?

Money in a Texas ABLE account is intended for the care and support of the person with special needs. Qualifying expenses include housing, education, transportation, assistive technology, health care, and employment support.

Any amount withdrawn for non-qualifying expenses will incur an IRS penalty.

Who can contribute to an ABLE account?

There are no restrictions on who may contribute to the ABLE account. Grandparents, parents, the person with a disability, friends, etc. can make contributions to the ABLE account.

Who controls a Texas ABLE account?

The person with a disability, as long as there is not a guardian of the estate, owns and operates the account and is the beneficiary of the account.

What are the advantages to these accounts?

Texas ABLE accounts provide advantages in two areas: taxation and access to government benefits. Through an ABLE account, a person with special needs can accumulate savings in a tax-advantaged way similar to 529 college savings plans. Like 529 plans, the funds in an ABLE account grow tax-free, and some states even offer account contributors a deduction from state income taxes.

An individual who has more than $2,000 in assets would normally not qualify for federal government benefits such as Supplemental Security Income (SSI), but under the ABLE Act, families may establish ABLE accounts that will not affect the child’s eligibility for SSI (up to $100,000), Medicaid, and other public benefits. In some cases, however, a special needs trust will be required.

A person may not have more than one ABLE account.

What are the drawbacks to these accounts?

Due to certain restrictions, Texas ABLE accounts may not be for everyone. Eligibility is limited to people who developed their disability before age 26, so anyone who becomes disabled later in life does not qualify. Also, unlike 529 plans, total contributions to ABLE accounts are limited to $15,000 per year, although beneficiaries who work can make ABLE contributions above the $15,000 annual cap from their own income up to the Federal Poverty Level, which is $12,760 for a single individual in Texas (as of 2020)

Another drawback is that after the death of the ABLE account beneficiary states can claim reimbursements from funds remaining in the account for any Medicaid benefits paid during the beneficiary’s lifetime.

ABLE accounts also have a payback clause that requires the balance of the account to be used to repay government benefits when the beneficiary dies.

Before setting up a Texas ABLE account for your loved one, consult a special needs attorney near you to make sure you understand every aspect of the law, the pros and cons of the many plans available and the potential impact to public benefits.