ABLE accounts help special needs families.
Nov. 6, 2018 Article

Ready, Planning & A.B.L.E.: Special Accounts for Special Needs


One of the newer additions to the financial planning toolbox in recent years, ABLE accounts (Achieving a Better Life Experience Act of 2014) allow for families with special needs individuals to create a tax-deferred account that permits tax-free distributions for the account beneficiary's care.1 Similar to 529 accounts for educational planning, ABLE accounts address the unique needs and often added costs of planning for those with special needs, while simultaneously taking advantage of public benefits uniquely available to those individuals.2

Question 1: How does an ABLE account fit into an overall portfolio?

Answer: From one individual or family to another, the needs and requirements of putting together a successful financial roadmap can be drastically different. When it comes to planning for an individual with special needs, this is especially true. There should be processes and accounts in place to ensure the special needs individual has a caregiving or support plan in the event family is no longer able to do so. These individuals and their families may incur significant additional costs associated with healthcare, nursing care and other support services.

Not only are costs higher, but for an individual with disabilities to be eligible to receive federal benefits, they actually don't have an incentive to save or own assets since federal benefits effectively cut off once the individual has more than $2,000 in assets (you read that correctly, a $2,000 NET WORTH!).3 In light of that, historical techniques that might go into planning for an individual with special needs could include the creation of a special needs trust, or having specific documentation that accompanies estate planning documents pertaining to everyday needs of the individual (think every day living items like what food a person may prefer, items they may find comforting, allergies, etc.). Established in 2014, ABLE accounts provide a tax-advantaged account to help special needs individuals save in the event they need to cover costs for which public benefits may not be sufficient.

Question 2: Can I only fund an ABLE account with cash?

Answer: The traditional method of funding an ABLE account is cash contributions that can be made by any party for the benefit of the sole beneficiary of the account. The accounts are limited to total contributions of $15,000 per year per beneficiary and once gifts are made to the account, they are considered a completed gift as the beneficiary is technically the owner of the account.4 While these contributions are not tax deductible at the federal level, they may be deductible at the state level and the funds are able to grow tax deferred with distributions made for the beneficiary tax free. One of the major changes for ABLE accounts arising from the 2017 tax code changes provided the ability to transfer cash from 529 educational savings plans into ABLE accounts.5 This can even be done if there are different beneficiaries on the two accounts as long as the two beneficiaries are in the same family. For example, if a family had two children and was funding an ABLE account for one child and a 529 plan for another, and the child with the 529 plan finished their education with funds remaining in the 529 account, the family could rollover funds from the 529 plan into the sibling's ABLE account as long as that amount does not exceed the $15,000 annual contribution limit per beneficiary.

Question 3: What are some drawbacks to ABLE accounts?

Answer: ABLE accounts have some relatively strict rules on who can be a beneficiary, how much can be contributed annually and what balances can be kept in the account to still ensure public benefits for the beneficiary. In order to be a legal beneficiary of an ABLE account, the individual in question must have become disabled prior to their 26th birthday. Individuals older than 26 can still open accounts, but their disability must have commenced prior to turning 26.6

Funding ABLE accounts is also subject to rules intended to limit the ability of individuals to compile large amounts of savings. First, as previously mentioned, ABLE accounts can only receive contributions of $15,000 from all sources for a given year.7 Secondly, once ABLE account balances reach $100,000, Medicaid benefits for beneficiaries is cut off until the balance of the account falls back below $100,000.8 Third, and perhaps most importantly, ABLE accounts may be subject to “clawback” rules, meaning once an account beneficiary that was receiving Medicaid benefits passes away, any funds left in their ABLE account may be subject to claims by the government for reimbursement of Medicaid benefits received. There are other rules that pertain to these, and due to how new they are in the spectrum of tax-advantaged accounts, consulting a tax professional or wealth advisor is a good idea to ensure the account is an appropriate fit for your situation.

For more information on ABLE accounts, check out Episode 11 of the Mariner Wealth Advisors podcast ‘Your Life, Simplified’ featuring two senior wealth advisors discussing their experience and considerations surrounding special needs planning.











The views expressed are for commentary purposes only and do not take into account any individual personal or financial considerations. It is not intended to be personal legal or investment advice or engage in a particular investment strategy.

Mariner, LLC dba Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser.  Registration of an investment advisor does not imply a certain level of skill or training.  MWA is in compliance with the current notice filing requirements  imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.