ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Not all states have ABLE accounts (yet), and each state will have slightly different rules and procedures for opening and using an ABLE account.
South Dakota has not adopted the ABLE Act, and is not expected to develop its own ABLE program.. Instead, The South Dakota Investment Council suggests that you open an ABLE account in another state.
Save Money Without Penalty
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting his or her eligibility for benefits). But special needs trusts must be controlled by a trustee – not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
Rules for ABLE Accounts in South Dakota
The basic rules for all ABLE accounts come from the federal ABLE Act. (Read the federal act here: https://www.congress.gov/bill/113th-congress/house-bill/647/). When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are the federal rules:
- Disability qualifications. In order to open an ABLE account, you swear under penalty of perjury that you have a disabling "condition that began prior to reaching age 26" and you must fall under the Social Security administration's definition of "disabled" for children. (CFR §416.906.)
- Only one account. Each person can only have one ABLE account.
- Anyone can put money in the account. Anyone can contribute money to an ABLE account, including the owner with a disability.
- Contributions are capped at $14,000 per year (in 2017). This limit is equal to the annual personal gift tax exclusion, so it will rise every few years. Also, to be clear, this is per account, not per donor. The owner of the account must keep track of all contributions to ensure that they do not exceed $14,000 for the calendar year.
- For many, the account cannot exceed $100,000. For those who qualify for SSI, the balance of an ABLE account cannot exceed $100,000. For those who do not qualify for SSI, the account can reach the limit allowed for 529 plans in that state. In South Dakota, the limit for 529 accounts is $350,000. However, South Dakota does not currently offer an ABLE account, so the limit would be set by the provider-state of the plan you choose.
- Funds must be used for Qualified Disability Expenses (QDE). QDE are expenses that are "related to the blindness or disability" of the account holder. Thankfully, this is a fairly broad definition and can include expenses for housing, education, transportation, employment training, health and wellness, financial management, legal fees, and more.
- Account funds are not taxed if used properly. The income earned from the funds in ABLE accounts is not taxed. Contributions are made with post-tax dollars, and distributions made for QDE are tax-free.
- Unused funds pay Medicaid. If the account owner dies with funds in an ABLE account, those funds must be used (in this order), to pay any outstanding QDE bills including funeral expenses, to provide payback to Medicaid for all Medicaid benefits received, and then to be distributed to the account holders legal beneficiaries.
When individual states adopt the ABLE Act and provide ABLE accounts for its residents, they may also make rules and policies about:
- Minimum amounts required to open an account
- Availability of accounts to non-residents.
- State income tax deductions for contributions
- Account rollovers
- Debit cards
- Investment portfolios
ABLE Accounts in South Dakota and Other States
South Dakota has not passed ABLE legislation and does not appear to be starting its own ABLE program. The South Dakota Investment Council—a government office that manages the financial assets of South Dakota—suggests opening an ABLE account in another state.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in South Dakota on Nolo.com.