ABLE Accounts in Pennsylvania: A Savings Plan for Disability Costs

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.

Pennsylvania does have an ABLE program, called PA ABLE. The program is open to residents and nonresidents, and Pennsylvania residents can open ABLE accounts in other states that allow it. See additional details below.

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.

Federal Rules for ABLE Accounts

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 some of the federal rules:

• Disability qualifications. To qualify to use an ABLE account, an individual must have a disabling condition that began before age 26.
• 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 annually. The limit for 2019 & 2020 is $15,000.
• 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, see the state rule, below.
• Use of funds is limited. Funds in an ABLE account must be used for Qualified Disability Expenses (QDE) -- expenses that are "related to the blindness or disability" of the account holder.
• Account funds are not taxed if used property. 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. When a person with a disability dies, any funds remaining in an ABLE account will be used to reimburse Medicaid for services the person received from that program.
• Read more about the federal rules for ABLE Bank Accounts.

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
• Fees
• Availability of accounts to to non-residents.
• State income tax deductions for contributions
• Account rollovers
• Debit cards
• Investment portfolios

ABLE Accounts in Pennsylvania

Pennsylvania's ABLE account program, PA ABLE, launched in 2016. Here are some details.

• Common name: CalABLE
• Website: https://www.paable.gov/
• Statute:Pennsylvania ABLE Act
• Program administrator:Pennsylvania Treasury Department
• Program manager: Ascensus
• Investment institution: BlackRock, Schwab, and Vanguard
• Account limit: $511,758 ($100,000 to remain eligible for SSI)
• Annual contribution limit: $15,000 (If you are working and not enrolled in an employer-sponsored retirement plan, you can contribute up to $12,140 more or the amount of your annual income before taxes, whichever is less, for a total annual contribution of $27,140.)
• Open to out-of-state residents: Yes
• Minimum amount to open an account: $25
• Debit or prepaid card available: Yes
• Investment options: 6 options that vary in risk
• Account fees: Annual maintenance feel of $60 ($45 if you receive your statements electronically); Checking account option fee: $2.00/month (waived if you receive your statements electronically or your average monthly account balance is $250 or more); Asset-based fees range from 0.34% to 0.38%.

Pennsylvania residents can deduct contributions up to $15,000 per year from their state taxable income. Also, funds in an ABLE account are not subject to Medicaid estate recovery.

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 Pennsylvania on Nolo.com.