Families can pool resources for disabled in ABLE accounts

CHICAGO (Reuters) - TJ Rodriguez is 36 and cannot walk without a walker, but horse riding helps him build his strength.

So when his birthdays come around, family members help fund his riding lessons, along with other enormous disability-related costs that are a part of the daily routine.

The lessons “are expensive and not covered by Medicaid,” said his brother, Chris Rodriguez, director of public policy for the National Disability Institute. The family pools its money in what is known as an ABLE Account, which is a tax-advantaged investment account designed for individuals with disabilities.

Although seriously disabled people get government benefits through Medicaid and Social Security disability programs, they often incur thousands of dollars in expenses that the programs do not cover. Families might be funding the travel to and from doctor appointments. People with autism or Down syndrome may need special training so they can work.

“Just by living with a disability, people have expenses others don’t have,” said Chris Rodriguez.  “They may have to modify their home so they can live there, or they may need to replace a broken wheelchair or a hearing aid.”

Coming up with the out-of-pocket cash is difficult, in part, because the government programs have strict limits on how many assets beneficiaries can have. An individual is not allowed to have more than $2,000 in a checking or saving account at any one time.

ABLE accounts, allowed since 2014, act like Roth IRAs or 529 college savings plans, in that people contribute after-tax money and do not pay taxes on growth if they withdraw it to cover disability-related expenses. There is no age-limit on using the funds, so they can be a valuable tool for long-term planning. But to qualify for an account, an individual has to experience a disability prior to their 26th birthday.

And now families who saved money in a 529 college savings plan can convert that fund into an ABLE. That can be a relief for parents who started saving for a baby and then later discovered autism or another disability that loaded the family with expenses.

Parents, or family members together, can put a total of $15,000 into an ABLE each year. To make sure that SSI and Medicaid coverage is not cut back, families must observe limits on the accounts. Only up to $100,000 in assets held in plans are specifically excluded from the income and asset tests used to determine eligibility. 

These accounts help alleviate some worries for parents who fret about how their adult children will handle huge costs after parents die, said Rob Wrubel, a Colorado Springs, Colorado financial planner and author of “Financial Freedom for Special Needs Families.”

“When parents come into my office, they are extremely nervous about the future,” said Wrubel. “Will my child have a roof over their head, will they have friends, who will be there to replace the feeding tube?  The concerns never go away.”

Wrubel often advises parents to set up a special needs trust to provide for children after parents die, and he is starting to suggest ABLE accounts too that can give disabled adults control over some money.

With ABLE Accounts so new, only about 15,000 have been opened and the average contains less than $3,400, said Rodriguez. Yet, he estimates about 7 million people may be eligible to have an account.

The ABLE National Resource Center provides a tool (http://ablenrc.org/state_compare/) to search states and compare plans. Although all states have 529 plans, not all offer ABLE Accounts and those that do differ on fees, investment choices and state tax rules. Yet, if your state does not offer the accounts you can use another state’s.

Still, be aware, notes attorney James Canup, of Richmond, Virginia, that if there is money left in an ABLE account after a disabled person dies, governments can take it to cover some of the individual’s Medicaid costs.

“Some states do not claw back the funds, but the federal government says they can,” said Canup.

(Editing by Beth Pinsker and Cynthia Osterman)