ABLE Accounts Break Through the $2,000 Asset Barrier

Simple gestures of financial kindness can end up costing someone who relies solely on government subsidies for their benefits. There is a solution, but many individuals with mental health disabilities are unaware of this perk.

The Achieving a Better Life Experience Act (ABLE) program is a way for those with a qualifying disability to achieve financial independence without worrying about breaching the $2,000 asset threshold. The program is a tax-free savings account that is not considered part of the assets for individuals on Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), or other qualified disabilities such as blindness or intellectual developmental disabilities.

This national program, which is in 47 states including the District of Columbia, allows any person (family and friends) or the eligible beneficiary (the disabled individual) to open and contribute to an ABLE account. California’s version of the program is known as CalABLE.

As of 2022, contributions are capped at $16,000 per year. The income grows tax free, and the first $100,000 is not considered part of the individual’s assets. Those who are working and are not part of an employer’s qualified retirement plan can contribute an additional $12,880 as of 2021 to their CalABLE account.

To qualify, the individual must have become disabled before age 26. Proof is required through a social security award letter that recognizes the disability or a qualified physician’s letter.

CalABLE Executive Director Dante Allen said a bipartisan bill in Congress wants to change the age from 26 to 46. Amending the age would be of significant help to many whose mental health symptoms don’t manifest until their late twenties, early thirties.

“It may have a good chance this year because it is an election year,” Allen said.

Discovering the Program

The program wasn’t available in 2012 when Henry Konopka battled with social security to preserve his SSI benefits. That year, Henry was discharged from the hospital and transitioned to a residential treatment facility operated by Momentum for Health. Henry’s SSI was his sole source of income. Then he received an unexpected $6,000 inheritance and notified Social Security of the gift. The agency immediately cut off his disability payments because he blew through the $2,000 asset threshold. That would not have occurred had he had a CalABLE account, allowing him to move the inheritance into the account with no ramifications.

Back then, Henry needed help and was connected with the Mental Health Advocacy Project, a nonprofit that specializes in assisting individuals with mental health needs. They came to Henry’s rescue, helping him keep his SSI benefits while working to resolve the problem.

Today, Henry no longer stresses over this unrealistic requirement. He opened a CalABLE account and moves his income into the savings account as needed and withdraws funds as necessary for expenses. The list of qualifying withdrawals is numerous including medical, rent, food, education, and basic needs that will improve one’s life. Going to the movies, taking a vacation, enjoying a nice meal at a restaurant all qualify.

In a CalABLE webinar, Allen said, people asked about using the account for a vacation, and he explained that this certainly qualified as improving one’s overall health. Use of funds is flexible, but it’s important to know there are some exceptions. For example, if you are paying rent, you must make sure you withdraw the money in the same month the rent is due to be considered a qualified expense.

As terrific as this program sounds, convincing people of its legitimacy has been the biggest hurdle for California’s three-year-old government agency, Allen said.

Just ask Henry. The first time he heard about it his response was, “I don’t trust it. It seems too good to be true.” Until he researched the program and realized “It’s an amazing resource.”

People have been programmed to accept that if their assets go over $2,000 all is lost. Buying into the program doesn’t come easy. At least not at first.

California’s Waiver Provision

The California version of the program also has a unique feature when an account holder—the beneficiary—dies. In other states with ABLE accounts, after all expenses including funeral costs are paid, the balance is automatically returned to the state to cover all the medical costs that were billed under Medicaid (in California it’s known as Medi-Cal). But that is not permitted in California. Legislators waived this requirement, and any balance can go to a qualified beneficiary such as a spouse or sibling if no Medi-Cal claims are filed.

Ellen Cookman, a lawyer who specializes in estate planning, special needs trusts, and probate law, said when working with clients on special needs trusts, “I tell everyone to do it,” referring to the CalABLE program. “I don’t see the drawback.”

She emphasizes it is a great way to train a child to manage their assets and provide financial security. “It’s a good combination with a special needs trust,” she said.

Cookman also points out that although you can open up an ABLE account anywhere in the country, California’s version is much more favorable due to the Medi-Cal waiver provision. There are other benefits as well. When family members make CalABLE contributions, they’re considered a “completed gift” and don’t have to be reported to the IRS. When those contributions are made to a special needs trust, they are considered a gift and must be reported.

Barbara N. opened a CalABLE account for her son, and at first he pushed back. When the pandemic struck and her son became isolated in a hotel, he discovered that the CalABLE debit card made his life easier. He could download the Safeway app, pay with the debit card, and have items delivered directly. This also eased his discomfort of interacting with people.

“The card gives him more agency over his life,” Barbara said.

Since using the card, he has become more independent and manages his finances,” Barbara said. “I have noticed a change.”

It’s the freedom of not being shackled financially to survive, which creates an incentive to earn more and lift yourself up, Henry said.

“To feel financially healthy changes everything,” he added. “Living with mental illness and finances go hand in hand.”

To learn more about the CalABLE program, click here. Social Security has more information about the ABLE program at this link .