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How Disabled Texans Can Save Money Without Losing Government Aid

If you or a family member has a disability and needs government assistance, this assistance comes with handcuffs.

Like many means-tested safety net programs, Medicaid and Supplemental Security Income, or SSI, for people with disabilities have barriers. Having only $ 2,000 in your name, for example, can make you ineligible for Medicaid medical assistance or SSI.

Given this extraordinary restriction, how does a person with a disability accumulate enough 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 resource test. The idea was to enable people with disabilities to have income and assets in their own name without being cut off from their greatest source of financial and healthcare support – Medicaid and SSI.

In that state, the Texas ABLE Account was launched in 2018, allowing residents with disabilities to protect up to $ 100,000 in assets without being disqualified for Medicaid or SSI.

The $ 2,000 asset limit is an incredibly low number, inconsistent with normal life. It is intuitive that this would force families to supplement their living expenses with informal employment and that highly functional but partially disabled adults would receive income under the table or not work at all.

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

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

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

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

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

Another way that 529 education accounts and ABLE accounts interact is that families who have 529 education savings can transfer them to 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 transfer funds to an ABLE account.

Under normal circumstances, the account holder, family members or friends can contribute up to $ 15,000 per year to an ABLE account. Adults with disabilities with income can contribute up to $ 12,760 per year to their ABLE accounts, as long as they do not also contribute to a 401 (k) type 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. Investment management fees for funds in a Texas ABLE account are medium to moderate, ranging from 0.25% to 0.65%.

In my opinion, the correct answer to how to invest these funds is: it depends on 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 spell the words and clap your hands to the beat, cheerleader-style. “AGGRESSIVE. Be! Be! Aggressive!” Just counts. ABLE: But also remember never to seek advice from a newspaper columnist who is unfamiliar with your particular situation.)

The other reason to hide savings and investments in these accounts – besides avoiding Medicaid restrictions on assets – is tax savings. Unlike a traditional IRA or retirement plan, you don’t get tax relief for contributions to these accounts. However, like the 529 education accounts, withdrawals from ABLE accounts are free of federal income tax as long as they are used for qualifying expenses. These include housing, transportation, personal support, education and basic living expenses. Thus, taxes on capital gains, dividends, and interest earned on money in the account should never be paid.

About 1,300 Texans with disabilities have ABLE accounts, with a cumulative value of about $ 10 million, according to the state comptroller’s office.

It’s a beginning.

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

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