The federal Achieving a Better Life Experience (ABLE) Act provides an important tool for people with disabilities to achieve a greater degree of financial independence. Recognizing the special financial challenges families face over a lifetime raising children with disabilities, the federal ABLE Act of 2014 added to the Internal Revenue Code rules under which states or state agencies may establish a tax-favored savings and investment program to provide secure funding for disability-related expenses while maintaining eligibility for vital public assistance.
An individual must have less than $2,000 in countable resources to qualify for Supplemental Security Income (SSI). Up to $100,000 in an ABLE account now is excluded from consideration for means-tested federal programs, meaning a person with a disability can have up to $100,000 set aside in an ABLE account for future care needs without running into an asset-test barrier that excludes them from receiving SSI. (If an ABLE account balance were to exceed $100,000, the beneficiary’s SSI benefits would be suspended until the balance drops below the $100,000 threshold.)
In December 2018, California became the 41st state to launch an ABLE program (CalABLE), administered by the State Treasurer’s Office and overseen by a seven-member board including the State Controller. In less than a year, CalABLE enrollment has exceeded 1,600 and $5.4 million assets under management. The California program is experiencing more than 50 new enrollments each week as marketing and outreach ramps up.
CalABLE offers significant benefits to people with disabilities, both in terms of tax efficiency and improved economic self-sufficiency. The model is similar to California’s ScholarShare 529 program. Much like ScholarShare allows families to start saving and growing those funds for the expense of higher education, CalABLE gives families the tools to grow their savings to care for a loved one with disabilities.
ABLE Eligibility
The ABLE Act defines an “eligible individual” as person who developed their disability before the age of 26. Individuals must have been living with their disability for at least one year, or must expect their disability to last for at least a year. In addition, the individual must meet at least one of the following criteria:
- Be entitled to or receiving SSI because of the disability;
- Be entitled to or receiving Social Security Disability Income because of the disability;
- Have a condition on the Social Security Administration’s List of Compassionate Allowances; or
- Be able to provide self-certification of the disability and diagnosis when opening the CalABLE account.
Savings and Investment Options
Several investment options are available to ABLE account beneficiaries. Depending on individual circumstances and risk tolerance, one may elect to have contributions invested in funds ranging from the FDIC-Insured Portfolio to the Aggressive Growth Portfolio. To date, funds are being allocated as follows: 34 percent, FDIC-Insured Portfolio; 24 percent, Moderate Portfolio; 24 percent, Aggressive Growth Portfolio; and 18 percent, Conservative Portfolio.
Family, friends, and beneficiaries can contribute up to a combined $15,000 each year to an ABLE account. Beneficiaries who are employed can contribute additional amounts. In 2019, eligible working individuals living in California can contribute an amount equal to their current-year gross income up to an additional $12,140. No contributions will be allowed once an ABLE account balance reaches $529,000, although investment earnings may cause the account to exceed this limit.
Account Withdrawals and Expenditures
The ABLE program aims to provide a beneficiary with tax-advantaged resources to spend on goods and services that enhance daily life. Therefore, ABLE account withdrawals are tax-exempt so long as they are spent on Qualified Disability Expenses, which include education, housing, transportation, health care, and more.
Funds in an ABLE account are accessible for withdrawal without charge or limit on the number of transactions. Funds may be transferred electronically to a personal checking or savings account, or a prepaid, reloadable debit card. While CalABLE will not inquire about the nature of expenditures, individuals should make sure to keep their receipts in case of inquiries by the Internal Revenue Service or other agencies.
California State Controller Betty T. Yee
300 Capitol Mall, Suite 1850
Sacramento, California 95814
(916) 445-2636
888 S. Figueroa Street, Suite 2050
Los Angeles, California 90017
(213) 833-6010
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