LOOSENING THE LIMITS

The Smart Money S.A.: How disabled Texans can save without losing government assistance.

If you or a family member is disabled and in need of government assistance, that help comes with handcuffs.

Like a lot of means-tested safety-net programs, Medicaid and Supplemental Security Income, or SSI, for disabilities include barriers. Having just $2,000 to your name, for example, can render you ineligible for Medicaid health care assistance or SSI.

Given that extraordinary restriction, how does any disabled person accumulate sufficient assets or income to supplement their government support?

Congress created the 529A ABLE account in 2014 to try to build some flexibility into this rigid means testing. The idea was to allow disabled folks to have some income and some assets in their own name without getting cut off from their biggest source of financial and health care support — Medicaid and SSI.

In this state, the Texas ABLE account was rolled out in 2018, allowing residents with disabilities to shield up to $100,000 in assets without being disqualified for Medicaid or SSI.

The $2,000 asset limit is a crazy low number, incompatible with normal living. It makes intuitive sense that this would force families to supplement living expenses with off-thebooks employment and that highly functional but partially disabled adults would either receive income under the table or not work at all.

The problem the Texas ABLE account is meant to solve is something the nondisabled among us hardly consider as problems. Let’s say you are partially disabled, with physical or mental limitations, and you receive SSI because your income is low. You can’t have $2,000 in your own name in any form. Even small income supplements, such as the recent CARE Act stimulus checks, put folks at risk.

A Texas ABLE account, however, allows you to save and invest some money, normally up to $15,000 per year.

The best way to understand the main features of these accounts would be by comparing them to their closely related tax-code cousin, the 529 education savings account. (The federal law that created the ABLE accounts is known as 529A, so, in fact, shares some legislative DNA with education savings accounts.)

Like the education accounts, ABLE accounts can be a good vehicle for aggregating funds from family members without reducing other benefits.

In the case of education, the

Let’s say you are partially disabled, and you receive SSI because your income is low. You can’t have $2,000 in your own name in any form. A Texas ABLE account, however, allows you to save and invest some money, normally up to $15,000 per year.

savings and investment accounts of a student’s parents will reduce financial aid. If you or your family have the funds, according to financial aid formulas at higher education institutions, you are expected to use those funds. Using the 529 as a “shield” to not disqualify a student from financial aid is analogous to the way in which ABLE accounts are a “shield” against Medicaid and SSI disqualification.

Another way in which 529 education accounts and ABLE accounts interact is that families who have 529 education savings can roll them over into a Texas ABLE account. For a child who becomes disabled and therefore unable to attend school, for example, it would make sense for parents to roll over funds into an ABLE account.

Under normal circumstances, the account owner, family members or friends may contribute up to a total of $15,000 annually to an ABLE account. Disabled adults with income can contribute up to $12,760 per year to their ABLE accounts, provided they do not also contribute to a 401(k)-style retirement plan.

In Texas, funds can be invested according to a menu of options, ranging from pure savings to moderately conservative investment funds to aggressive funds. The investment management fees for funds in a Texas ABLE account are medium to moderate, ranging from 0.25 percent to 0.65 percent.

In my opinion, the correct answer to how to invest these funds is: It depends when you need to withdraw the money. Less than a year? Pure savings. Between one and five years? Moderate risk. More than five years? Be aggressive.

(As you read this, I hope you are spelling out the words and clapping your hands to the beat, cheerleader style. “A-G-G-R-E-S-S-I-V-E. Be! Be! Aggressive!” This is generic advice about time horizons that applies to all investment accounts, not just ABLE accounts. But also, remember to never take advice from a newspaper columnist who does not know your particular life circumstances.)

The other reason to stash savings and investments inside these accounts — in addition to avoiding Medicaid restrictions on assets — is tax savings. Unlike a traditional IRA or retirement plan, you do not get a tax break for contributions to these accounts. However, similar to 529 education accounts, withdrawals from the ABLE accounts are federal income-tax free as long as they are used for eligible expenses. These include housing, transportation, personal support, education and basic living expenses. So taxes on capital gains, dividends and interest earned on money inside the account never has to get paid.

Approximately 1,300 Texans with disabilities have ABLE accounts, with an accumulated value of approximately $10 million, according to the state comptroller’s office.

It’s a start. Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates.” michael@michaelthesmart money.com |twitter.com/michael_taylor

IStockphoto For the disabled who receive Medicaid and/or SSI, 529A ABLE accounts mean they can have more than $2,000 to their name.