As a financial advisor, you’ve likely heard of ABLE accounts, launched in 2016 following the Achieving a Better Life Experience Act. But unless you work with clients who have early-onset disabilities or disabled children, you may not know the power of these accounts and how widely available they have become.
According to the just-released ABLE America 2021 market report from AKF Consulting Group, the ABLE market hit $1 billion in assets under management in 2021. Approximately 112,100 ABLE accounts have been opened nationwide. Each beneficiary can have only one account. AKF Consulting Group is an advisor to public administrators of 529, ABLE and state-run retirement plans. ISS Market Intelligence provides its asset and account data.
“Despite economic difficulties, we continue to see the importance of programs for people who are often underserved,” Andrea Feirstein, the CEO of AKF Consulting Group, said in a press release. “As more plans are launched and more opportunities created to empower savings by people with disabilities, we’ll certainly see growth in ABLE accounts and the individuals they benefit.”
Savings of Up to $550,000
Rethinking65 reached out to Feirstein, who has written for us about ABLE accounts, to find out the maximum allowable contributions and account balances for these savings vehicles and to ask some other questions.
She and her colleagues clarified that an individual can contribute $16,000 per year and noted that this number changes as the IRS updates the allowable gift tax amounts (ABLE annual contributions were $15,000 in 2021).
An individual can contribute more if they are eligible for ABLE to Work, a provision in the Tax Cuts and Jobs Act of 2017 that applies to some ABLE account owners earning income. Those additional amounts are included in the AKF Market Report.
However, the maximum account balances vary by state and generally range from about $400,000 to over $550,000, said Feirstein. The ABLE account maximum is set by each state’s 529 maximum balance limit.
Who is Eligible?
Individuals are automatically eligible to establish an ABLE account if they’re entitled to Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) based on blindness or disability. An individual must have a medically determinable physical or mental impairment that results in “marked and severe functional limitations” that started prior to age 26 and has lasted for at least one year, or is expected to last for at least a year.
The majority of ABLE investors (70%) open their account based on their eligibility for SSI or SSDI. However, if a potential account owner is not eligible for SSI or SSDI, they can self-certify their disability, said the AKF team. About 30% of ABLE investors open their account by self-certifying that they have a qualifying disability and a signed disability diagnosis from a qualified physician.
Eligibility for ABLE accounts may expand soon, said Feirstein, noting there is bipartisan legislation in the Senate and House that has significant traction. The ABLE Age Adjustment Act (S. 331 / H.R.1219) would raise the age of onset of a disability to 46, so individuals with qualifying disabilities that began before age 46 would also be eligible to open an ABLE account.
Account Options
Presently, 46 states and the District of Columbia offer an ABLE plan. Individuals in the four states that don’t (Idaho, North Dakota, South Dakota and Wisconsin) may invest in any ABLE plan available nationwide. [Plan details are in the ABLE America 2021 report].
Clients don’t have to choose the plan offered by their state but there may be tax or other benefits associated with their state plan, said Feirstein. For example, 21 states offer a tax deduction or credit for investments in that particular ABLE plan. “And at least 12 states protect account balances from a state Medicaid clawback after the death of a beneficiary,” she said.
Families should consider the state tax or other benefits of the plan offered by their state. “Beyond this, a family may want to ask about investment differences across plans, although generally ABLE plans are similar in that they tend to offer simple investment lineups, regardless of whether the plan is a member of a multi-state partnership or is independent. The key distinction may be the investment manager,” said Feirstein.
The bulk of ABLE plan assets (75%) are spread between two administrators, Ascensus and Sumday, according to the AKF report.
Feirstein notes that Maine’s new cash-only ABLE plan caters to the needs of many ABLE account owners who use their ABLE accounts for transactional purposes and daily expenses. However, “If the individual is planning to use the assets at a later date or for retirement, the lack of market growth may be a deterrent,” she said. “ABLE account owners should consider their expected use of the plan when opening an account.”
Jerilyn Klein is editorial director of Rethinking65.
