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There's a game-changing way for people with disabilities to save. Few are using it

Key Points
  • ABLE accounts are state-sponsored, tax-advantaged savings accounts..
  • Individuals with disabilities can save up to $100,000 without losing critical government benefits.
  • Fewer than 1% of those eligible to own an ABLE account have one.
Financial plans for special needs
Financial plans for special needs

Brian Guay is a young man with a goal.

The 25-year-old from Bedford, Massachusetts, who has autism, works three jobs and saves every paycheck. He is descended from a long line of farmers on his father's side and says he wants to purchase a farm of his own someday. He's stashing away more than $1,000 a month toward that end.

For years, individuals with disabilities and their families have been discouraged from putting too much money in savings.

Brian Guay, holding his painting of farmers in his family, is saving over $1,000 a month in an ABLE account in hopes of buying his own farm.

Why? Because having more than $2,000 in cash or investments in a disabled relative's name could mean losing all or a portion of critical government benefits their loved one receives, such as Supplemental Security Income, Medicaid or other services.

That's no longer the case – if you put your savings in the proper account.

In December 2014, Congress passed the Achieving a Better Life Experience Act, or ABLE, creating a state-sponsored, tax-advantaged savings program that is similar to the popular 529 college savings program. The plans began rolling out two years later.

Those with special needs and their families can contribute up to $15,000 a year in an ABLE account. If the person with the disability is working and does not participate in a workplace 401(k) or other retirement program, the annual limit is even higher. Money is put in after taxes, and earnings growth and qualified withdrawals are tax-free.

The good news: The account's total value can grow to $100,000 without jeopardizing access to government assistance.

"For someone that has the ability to want to save those dollars and can earn it, the ABLE account has been the greatest thing to come out for a disabled person in 20 years," says financial advisor Charles Massimo, founder and CEO of CJM Wealth Management in Deer Park, New York, and the father of two 19-year-olds who are autistic.

However, only a fraction of those eligible for these accounts have one.

The ABLE National Resource Center says 8 million people could qualify for an ABLE account. Yet, as of June, only 46,000 had one. The average account balance was $5,656, according to data collected by Strategic Insight.

To be eligible, a person must have a disability diagnosed before age 26, receive Social Security benefits or meet Social Security's definition of functional limitations. The funds can be used for any expense that is related to the account owner's disability and includes education, housing, transportation, job training and health-care expenses.

The Guay family sees ABLE accounts as a way for families and individuals with disabilities to prepare for their own future as opposed to relying solely on government programs.

"This gives us more elbow room and Brian the ability to save and to plan and to do what he needs to do to take care of himself like everyone else has to," said Marty Guay, Brian's father.

As of now, 42 states as well as the District of Columbia sponsor ABLE programs. In most cases, you don't have to live in a particular state to enroll in its plan.

An ABLE account can be opened by a beneficiary, parent, guardian or another person who is designated by power of attorney by simply filling out an online application. You can compare various state's programs – including fees, investment options and minimum contribution requirements – and link to the plan on the ABLE National Resource Center website.

Some plans, such as the one sponsored by Massachusetts, have zero minimums to open the account as well as no annual maintenance fees. There is some cost involved, usually in the form of investment fees which, in the case of Massachusetts, range from roughly $5 to $9 per every thousand invested.

The ABLE account has been the greatest thing to come out for a disabled person in 20 years.
Charles Massimo
CEO of CJM Wealth Management

Given their relative low cost, ABLE accounts can be more accessible for many families than so-called special needs trusts, another common strategy for saving substantial amounts of money in a disabled person's name.

"For those that don't have the wherewithal, or the money or want to go through the expense of a special needs trust, the ABLE account is a great alternative," Massimo said.

Marty and Ann Guay agree.

As their son Brian works and saves for his farm, the Guays say they are helping him achieve his dream by contributing to his ABLE account.

They also recognize these funds will help Brian provide for himself when they no longer can.

"There's an expression in the disability community of 'Oh, I can never die; I have to be here forever,'" said Ann Guay. "But none of us will be.

"It just starts the conversation and you can't do it too soon."

CHECK OUT: Why you may need disability insurance, even if you're young and healthy via Grow with Acorns+CNBC.

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