How ABLE accounts aid with savings for people with disabilities

Miranda Kennedy, ABLE National Resource Center Director, joins Yahoo Finance’s Kristin Myers and Alexis Christoforous to break down special savings ABLE accounts provide for those with disabilities.

Video Transcript

KRISTIN MYERS: Welcome back to Yahoo Finance Live. Time now for our Funding Our Future segment. And let's talk about a special savings account for the differently abled. We're joined now by Miranda Kennedy, director of the ABLE National Resource Center. And ABLE does stand for Achieving a Better Life Experience.

So Miranda, as I was reading through the notes before this conversation, it seems as if folks who are disabled are, in many ways, penalized or really unable to get resources from the government, like government assistance, if they're saving money at least above a certain level, it seems. Is that the right way to read it? And how does therefore an ABLE account really kind of help solve that problem?

MIRANDA KENNEDY: You know, that's a great question. We get it all the time. What is an ABLE account? So an ABLE account, what it is, it's a tax advantaged savings account for people with disabilities to save for qualified disability expenses. And that actually covers a very broad amount of expenses across a lot of categories, such as housing, food, education, employment, transportation, and so on. ABLE, as you said, stands for Achieving a Better Life Experience.

And the ABLE Act legislation was passed in 2014. It allows states to create an ABLE account for eligible people with disabilities where their disability began before the age of 25 so that they can save and invest money in a tax exempt account. And that account, it's owned by the person with the disability. And they can save up to $15,000 per year. And that amount can be contributed to by the account owner and/or by third parties. If the person is working, they can contribute up to an additional $12,760. If they don't have an employer retirement account and if you live in Alaska or Hawaii, that amount is higher.

And as you said, you know, federal means tested benefits programs, that asset limit is $2,000. And that asset limit hasn't changed since 1984, where you can't save above $2,000. So this ABLE account really allows people to save up for things they need, being able to invest money, have their money make money, so that they can achieve life goals and enter more of the economic mainstream.

ALEXIS CHRISTOFOROUS: Miranda, I have a two-part question for you. One, I'm curious how many states actually offer these ABLE accounts. And if your state does offer it, is it a smart thing to use the stimulus check you might get to open one up for yourself if you are disabled or if you have a family member who is disabled open it up for them?

MIRANDA KENNEDY: Right, that's a great question. So there's 43 states plus DC that currently have ABLE programs that are open. Many of those states are open to out-of-state residents as well. So if you're in one of the seven states that doesn't have an ABLE program or one of the territories, you can still open up an ABLE account. We have tools and resources on our website, ABLE National Resource Center's website, to help folks do that. And actually, even this week, I've learned of other states that are planning on launching later this year. There's movement towards next year as well. So it's continuing to evolve that space.

You know, and as to your question about someone using their economic impact payment to open an ABLE account for themselves or to help a family member open an account, it's a great idea. The American Rescue Plan of 2021 provides stimulus payments, extends unemployment payments, and proposes changes to the earned income tax and child tax credits, all of which may be deposited into an ABLE account. Those funds in those accounts do not count against eligibility for any of those means tested programs.

And really, it's important to remember that not placing the savings in an ABLE account and placing them into another type of account or attaining them may impact benefits eligibility when resource limits for means tested benefits are exceeded. So ABLE accounts are a safer option for savings. We've heard from lots of ABLE account owners and family members who shared that they're putting their economic impact payments, either the total or a portion, into their ABLE accounts to save up long term. And they really do wish more people were benefiting and learning and opening those ABLE accounts.

KRISTIN MYERS: So I actually want to ask you about that, Miranda. I believe I was reading that about 8 million people are eligible for these accounts. How many people are actually opening them? Are we still far under that 8 million who should be taking advantage?

MIRANDA KENNEDY: Yeah, you know, we are. We've just exceeded 1% of folks who've opened accounts who are eligible. So at the end of 2020, there were 80,000 ABLE accounts that had been opened with over $640 million invested in those accounts. An average savings in an ABLE account is $7,800. And you'll remember that $2,000 asset limit. That's almost $6,000 above that asset limit to still maintain eligibility for programs like Supplemental Security Income and Medicaid, other things folks need.

Our expectation is that by midyear this year, 2021, we hope to reach a new milestone with ABLE active program implementation with over 100,000 accounts opened and growing to really provide unprecedented opportunity for individuals with disabilities in their families to set and meet short and long range financial goals, and that the amount in those funds will exceed over $700 million by midyear this year.

It's important to keep in mind, you know, future growth potential is enormous here. Over 90% of eligible individuals with disabilities are still learning about the benefits of ABLE accounts and how they can improve their quality of life experience.

KRISTIN MYERS: Wow, 1%, so still a long way to go. Hopefully someone out there who has disabilities that is watching or maybe has family members or friends who have disabilities are watching and can pass that message along to them to take advantage of some of these accounts. Miranda Kennedy, ABLE National Resource Center director, thank you so much for joining us today for this Funding Our Future segment.