NJ ABLE Frequently Asked Questions
November 22, 2023
An ABLE account is a tax-advantaged savings account for individuals with disabilities. With NJ ABLE, qualified individuals with disabilities can save for disability-related expenses in tax advantaged savings accounts without losing eligibility for means-based assistance programs like Supplemental Security Income (SSI) and Medicaid.
If an individual receives SSI benefits, the first $100,000 in their ABLE account are exempt from the SSI $2,000 individual resource limit. If an individual’s ABLE account exceeds $100,000, their SSI cash benefit payment will be suspended until the account balance falls below $100,000. However, one’s Medicaid eligibility through SSI continues regardless of one’s ABLE account balance. Allowable expenses are not limited to medical necessity and may include: education, housing, transportation, personal support services, and more.
The individual with the disability is the account owner, but can appoint a representative, if preferred. And, similar to college savings plans (529 plans), anyone can contribute to an NJ ABLE (529A) account up to annual limits and, of note, income earned by the account grows tax free.
An ABLE account is a powerful financial tool to add to the toolbox of resources when planning for the future for one’s self or family member with a disability. Individuals with autism frequently rely on programs that have strict asset and requirements, such as Medicaid, SSI, SNAP (Supplemental Nutrition Assistance Program), FAFSA (Free Application for Federal Student Aid), and HUD (Department of Housing and Urban Development) for rental assistance. Without NJ ABLE, one would have to spend down to remain enrolled/eligible. Opening a NJ ABLE account provides individuals with autism, and other disabilities, the independence and flexibility to save money for the future without jeopardizing enrollment in these critical assistance programs.
Autism New Jersey’s 800.4.AUTISM Helpline (800.428.8476) often receives inquiries from families and self-advocates with questions about ABLE accounts, qualified expenses, tax consequences, and more. We recently had the opportunity to speak with Cristine Chickadel, New Jersey Division of Disability Services’ NJ ABLE Program Representative, who shared her expertise and answered some of the most frequently asked questions that we encounter.
How can an ABLE account be funded? Can SSI payments fund an ABLE account? What about income from the account owner’s employment?
A NJ ABLE account can be opened with a minimum deposit of $25, and the account can be funded through various sources such as check, electronic funds transfer (EFT), payroll direct deposits, recurring contributions and Ugift.
Anyone can contribute to the account including the account owner, friends, family, and even employers. The total annual contributions by all individuals – family, friends, an employer or a 529 rollover – for the 2024 tax year is $18,000. With NJ ABLE, one can deposit up to $18,000 per year and maintain a lifetime balance up to $305,000.Read more
The account owner can deposit their income (ex: employment earnings, SSI benefit payments) into a NJ ABLE account. That income will be regarded as ‘countable income’ by means-based programs in the month it is earned, but depositing income into a NJ ABLE account protects that income from being counted as a resource during the following month. Deposits made by third parties, such as a family member will not be considered countable income.
NJ ABLE also offers the following additional savings provisions with additional tax advantages for those who qualify:
- 529 College Savings Rollover Provision
Federal tax law allows rollovers from a 529 savings plan account to a NJ ABLE account for the same beneficiary or a member of their family. Along with contributions from other sources to the beneficiary’s plan account, the amount that may be rolled over cannot exceed the annual limit on contributions to an ABLE account ($18,000 in 2024) without regard to the increased limit permitted for contributions by certain working beneficiaries.
- The ABLE to Work Act Savings Provision
This provision allows NJ Able account beneficiaries who work but are not participating in an employer-based retirement fund to contribute beyond the $18,000 annual maximum, up to the annual federal poverty limit for the prior year or the total of their earned income for that current taxable year, whichever is less. In 2024, those eligible for the retirement savings contribution can save up to either their earnings for the current taxable year or $14,580, whichever is the lower amount.
- The Retirement Savings Contribution Credit “Saver’s Credit”
Qualifying low and moderate earning taxpayers who make contributions to their NJ ABLE account may take a Saver’s Credit on federal taxes for contributions made to their NJ ABLE account up to a maximum of $2,000 per year.
What is the difference between an ABLE account and a Special Needs Trust?
ABLE accounts and Special Needs Trusts (SNTs) are both tools that can be used to improve the quality of life of individuals with disabilities by creating opportunities to save money for living expenses without disqualifying them from eligibility for means-tested benefits.
ABLE accounts and SNTs can both be part of a sturdy financial foundation for individuals with disabilities. An individual may have both as part of their financial planning. As such, it is important for individuals with disabilities and their families to assess their own circumstances, and determine whether to establish an ABLE account, Special Needs Trust, or both. However, it is important to note that ABLE Accounts and SNTs are governed by very different rules. Individuals and families are advised to seek guidance from qualified professionals if they need help deciding which combination is right for them.Read more
Overall, compared to a Special Needs Trust, ABLE Accounts offer greater flexibility and control for the account beneficiary. ABLE accounts can be established at no cost and only require a minimum of $25 to open, whereas SNTs often cost more to establish, require a trustee to manage, and may not be a feasible option for smaller amounts of money. ABLE accounts can be easily opened by the individual or their representative, whereas an attorney and court approval may be required when establishing a SNT. Finally, in contrast with SNTs, ABLE accounts’ earnings are tax-free.
For more information, visit the archived webinar on ABLE accounts and Special Needs Trusts on the ABLE National Resource Center’s website.
If the account owner passes away and there is money left in their ABLE account, what happens to that money? Can CMS/Medicaid recoup money from an ABLE account?
Medicaid will file a claim against the individual’s ABLE account seeking reimbursement for the costs of care incurred after the establishment of their ABLE account, while the individual was still living. However, it is important to note that the Medicaid pay-back provision only applies to money remaining in the account after outstanding payments due for qualified disability expenses have been paid. Click here for more information>>
What are qualified ABLE expenses?
Qualified Disability Expenses (QDEs) under the ABLE program are broadly defined as ANY expenses related to the beneficiary’s disability that enhance the individual’s health, independence, and/or quality of life.Read more
While QDE’s may not provide a benefit to anyone other than the beneficiary, they are not limited by medical necessity and may include items and services that would reasonably be considered “basic living expenses.”
Allowable expense categories include:
- Health and wellness
- Legal fees
- Financial management
- Employment training and support
- Assistive technology
- Personal support services
- Oversight and monitoring
- Prepaid Funeral and burial expenses
Funds in an ABLE account are intended to supplement but not supplant other available benefits. Used in combination with other benefits such as health insurance (including Medicare, Medicaid, and waiver programs), vocational rehabilitation and other workforce services, and special education services, NJ ABLE funds can be a powerful resource. Click here for more information on QDE’S>>
What happens if ABLE account funds are used for non-qualified expenses?
Distributions should be spent on a qualified disability expense within the month they are withdrawn. There may be federal tax implications if distributions are held beyond the month withdrawn and spent later, or if spent on non-qualified expenses, or if the total amount distributed during a year is more than one’s qualified disability expenses for that year. Please consult with the IRS or a tax advisor.
Is the interest received on an ABLE account taxable and reportable?
There are two tax forms applicable to ABLE accounts:
- The 1099-QA reports distributions, earnings on the distributions and the closing of an ABLE account to the IRS.
- The 5498-QA is sent to the ABLE account owner at the end of the year, reporting on the total funds contributed to the ABLE account during that calendar year.
For more information: Instructions for Forms 1099-QA and 5498-QA (2023) | Internal Revenue Service (irs.gov)
Where should a parent send the annual report for their child’s ABLE account? Are there sample report forms?
Accounts are opened and purchases made with funds from the account through self-certification, under penalty of perjury. It is recommended that ABLE account owners keep a file of all ABLE account disbursements/expenditures, in the event that the account is audited.
ABLE plans provide monthly statements to ABLE account owners. ABLE plans have reporting agreements with the Social Security Administration (SSA) and the IRS. For example, the IRS is informed when an ABLE account is opened, and for Supplemental Security Income (SSI) beneficiaries, SSA monitors ABLE account balances to check balances and distributions.Read more
Those who are representative payees for benefits received through the Social Security Administration must keep detailed and accurate records of how they use SSA benefits. Therefore, payees who choose to put SSA benefits in an ABLE account must follow SSA’s general rules for all payees, which includes keeping detailed and accurate reports of how benefits are used as well as submission of an annual representative payee report. Learn more about Social Security requirements here: Social Security – Representative Payee Program – Payee and ABLE Accounts (ssa.gov).
Additionally, NJ Medicaid will request information on the ABLE account at redetermination, such as account statements and information on significant deposits and withdrawals.
Cristine Chickadel, New Jersey Division of Disability Services’ NJ ABLE Program Representative, co-authored this article. Autism New Jersey appreciates Cristine’s insight and expertise, which made this article possible.