ABLE Accounts and Social Security Income

Many of the clients of our Indiana SSI attorney have worked years and years before developing impairments that leave them unable to work. These individuals earned work credits when paying Social Security taxes and are thus qualified for the Social Security Disability Insurance (SSDI) program. As an insurance program, it does not have any kind of asset limitation.

Someone could have a million dollars in the bank and if they worked long enough to earn sufficient credits and become disabled, they can receive monthly SSDI benefits. Under SSDI rules, these individuals can engage in part-time work and earn some modest income without seeing any reduction in their monthly benefits.

Other individuals have congenital or developmental disabilities which make them unable to ever work a regular job. These individuals can still be eligible for Social Security’s Supplemental Security Income (SSI) program, even if they have never earned any work credits by paying Social Security taxes. However, this program has resource limitations which can make someone with any meaningful assets ineligible.

Learning More About ABLE Accounts person grabbing the hand of another individual in Indiana

Without taking advantage of the ABLE account described in this blog, a non-married individual with more than $2,000 in the bank would be ineligible for SSI. Without an ABLE account, the SSI program also seems to penalize efforts to engage in some part-time, supported employment. If someone on SSI is able to work but does not have an ABLE account, any income after the first $85 is reduced by fifty cents on the dollar.

A year ago, I wrote a blog about how SSI’s asset and income limitations are outdated, as they have not been increased in several years. (For example, the $2,000 resource limitation has not been changed since 1989.) After writing this blog, I was happy to see that Congress members had proposed a Supplemental Security Income Restoration Act to address these antiquated rules and make other positive changes to the SSI program. Unfortunately, this proposal has not seemed to gain much traction and SSI’s asset and income rules have not been changed.

Achieving a Better Life Experience

Nonetheless, the ABLE account (Achieving a Better Life Experience) can enable someone who has been disabled since an early age to establish an account that provides for some financial security without losing eligibility for SSI benefits. It can also allow the disabled person to engage in some part-time work without the significant monthly SSI benefit reduction which would otherwise occur. If you are the parent of a young child who may never be able to work a regular, full-time job, I would certainly encourage you to read on and consider the advantages of such an account.

An ABLE account is available to someone who became disabled before their 26th birthday. Such a person can have up to $100,000 in the ABLE account and remain eligible for SSI, as the funds in the account are exempt from being considered resources which would count towards SSI’s asset maximum. 

Contributions to the account may be made by any person. The total annual amount of contributions cannot be more than the amount of the IRS’s gift tax exclusion amount. ($16,000 in 2022) The good news about contributions to an ABLE account is that, for SSI purposes, they are considered very differently from a regular gift. For example, if a family member paid rent for an SSI recipient, the rent payment would be considered “gift” income to the SSI recipient and would result in a deduction from the monthly SSI benefit. (A gift of even $1,000 could prevent the SSI recipient from even getting a benefit that month.) If the family member contributes to the ABLE account, however, this contribution would not be considered income to the SSI recipient and would not reduce or eliminate the monthly SSI benefit.

Qualified Disability Expense (QDE)

Then, the disabled SSI recipient could use funds from the ABLE account to pay the rent! This is because housing is considered a Qualified Disability Expense, or QDE. Other QDEs include utilities, education, transportation, healthcare, and basic living expenses. So, as you can see, a disabled individual can use the ABLE account to pay for a wide range of life’s necessities. An individual can withdraw ABLE funds at any time for qualified expenses and this will not affect their SSI benefits. 

This is a significant advantage of the ABLE program. Without using this method, the rent paid by the family member would count as unearned income, which results in a dollar-for-dollar reduction in the monthly SSI benefit after the first $20.

ABLE accounts also have tax advantages, as investment income from the ABLE account is not taxable if used for QDEs. In this way, the ABLE account is a lot like a college 529 plan – as long as the earnings from investment growth are used for the account’s intended purpose, they are not taxed. So just like tuition payments made from a college 529 would not be taxed like a capital gain, QDEs are not taxed upon withdrawal from an ABLE account.

If the disabled individual is able to work and earn some income, these amounts (as long as they do not exceed the federal poverty level for a one-person household) can be contributed to the ABLE account, as well. These contributions can even go over and above the (current) $16,000 gift tax exclusion amount that can be contributed to the account by others. The amounts contributed by the disabled individual him/herself are then excluded from being considered as earned income by Social Security, meaning they would not reduce the individual’s monthly SSI benefit. This can make a major difference for this person, as the monthly SSI benefit would not be reduced like it otherwise would (a reduction of fifty cents on the dollar for all income over $85.) The disabled individual can then withdraw funds from the account to pay for qualified expenses.

As I’ve written before, I would encourage all parents of a disabled young adult to help their child pursue disability benefits right away, even if the parents have the means to support the child. One day they may not be able to provide this support, and the benefits can provide peace of mind in this regard. If these parents have established some kind of financial account for the child, they may think that SSI’s strict asset maximum would preclude the receipt of SSI benefits. However, the ABLE account program was designed specifically for this situation and can enable a disabled young adult with a financial account to still obtain SSI. If the young adult intends to participate in some kind of part-time, supported employment, the SSI can act as a meaningful supplement. (After all, the name of the program is Supplemental Security Income.) If this is your situation, we would be happy to talk with you about how your disabled young adult child can take advantage of the synergy between SSI and an ABLE account.

One further note: As stated earlier, the ABLE account is only available to someone who became disabled before age 26. While it can solve many of SSI’s problems for these individuals, SSI’s unfair asset and income rules still apply to someone who becomes disabled later in life but, for whatever reason, did not earn the work credits for SSDI. Under SSI’s current rules, these individuals often do not receive income to afford life’s basic necessities. We still need SSI reform so they can do so.


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