Washington, D.C., July 9 – Alabama Governor Kay Ivey signed Act 2021-514 allowing ABLE Savings account holders to deduct up to $5,000 per year per taxpayer on State Income Taxes. The plan, announced by Alabama State Treasurer John McMillian, aims to make saving achievable for people with disabilities by allowing ABLE account holders to save without losing the public benefits which many individuals with disabilities depend on.
What are ABLE Accounts?
In 2014, the 113th Congress passed H.R. 647, the Stephen Beck Jr. Achieving a Better Life Experience Act (ABLE Act), which established tax-advantaged savings accounts for people with disabilities and their families. The ABLE Act was designed to support people with disabilities who are required to meet means/resource tests to continue receiving potential life-saving benefits. Members of the disability community who are on benefits are restricted to having less than $2,000 in liquid resources. Millions of people with disabilities rely on public programs for income, health care, housing assistance and food security. ABLE Accounts allows people with disabilities to accumulate savings that do not affect their eligibility for these benefits.
Individuals with disabilities who have a disability age onset prior to turning 26 years old, and also receive SSI/SSDI benefits or meet the Social Security definition and criteria for functional limitations with a provided letter from a licensed physician, are eligible for an ABLE savings Account.
Passing the ABLE Act was a landmark bipartisan achievement that has significantly improved the lives of the more than 60 million Americans living with some form of disability. ABLE Accounts are a key solution to a critical disability challenge and have received support from across the aisle. Back in 2016, Maryland Democratic Senator and co-sponsor Chris Van Hollen (D-MD) shared that“Since the passage of the ABLE Act, families across the country have benefitted from the opportunity to better plan for the future of their disabled loved ones. This legislation will build on the foundation of the ABLE Act and expand access to these accounts to more families.”
Likewise, North Carolina Republican Senator Richard Burr (R-NC) stated his support that “in [his] view, ABLE accounts are a milestone in a larger movement to create opportunity and independence for those impacted by disability.” It’s promising to see leaders from across the political spectrum coming together to support people with disabilities and their opportunities to achieve financial independence.
Alabama Act 2021- 514
According to the Annual Disability Statistics Compendium, there are 776,991 Alabamians with disabilities and many of them stand to directly benefit from the passage of the Alabama ABLE Savings Plan deduction. This will cover qualified disability expenses, any expense related to the designated beneficiary as a result of living with a disability, and qualified withdrawals which are exempt from federal and state income taxes. However, deductions contributions are only available to those made by the Alabama Savings Plan, which is the only official plan of the State of Alabama. It also does not include rollovers that have already claimed Alabama income tax by roller contribution amounts.
This act was passed unanimously and with sponsors from Alabama House Representative Rep. Danny Garret and Alabama State Senator Will Barfoot. Rep. Garret, in his support, shared that having a nephew with Down Syndrome, he is aware of the importance of providing financial help for those with disability related expenses. Likewise, Treasurer McMillian reflected on the overwhelming state support saying that “We are excited about this tax deduction on contributions as we strive to make saving simple and achievable for everyone in our community… As Americans with disabilities continue to grapple with health and financial challenges, one thing is certain — we must expand every and all opportunities for financial stability.”
The act becomes effective for tax years beginning after December 31, 2020 through December 31, 2025. The rules of administration will be adopted by the Department of Revenue.
More About ABLE Accounts
Reflecting on the importance of policies to support the financial independence of people with disabilities, Ollie Cantos, Vice Chair of RespectAbility’s Board of Advisors, noted that “It is imperative that job seekers with disabilities and their advocates learn more about ABLE Accounts. Learning how ABLE accounts may be used most effectively and expanding opportunities for enhanced economic self-sufficiency are absolutely imperative.” If you are also looking for a good way to save money for your children, then you should look into Shariah-compliant children’s ISAs.
Last year, RespectAbility published an updated toolkit which included extensive details on how people with disabilities can capitalize on the opportunities created by expanding ABLE Accounts:
- Eligibility: To be eligible to establish an ABLE account, (1) blindness or disability must have occurred before age 26 and (2) the person must be entitled to benefits based on blindness or disability under Title II or Title XVI of the Social Security Act.
- Contributions: “These are not tax deductible and must be in cash or cash equivalents. Anyone, including the designated beneficiary, can contribute to an ABLE account. An ABLE account is subject to an annual contribution limit and a cumulative balance limit.”
- Qualified Expenses the Account May Cover: Examples include basic living expenses, health and wellness, housing, financial management, transportation, education and training, assistive technology, and legal fees.
- Limited Exemption: “[T]he first $100,000 in [the] ABLE account would be exempted from the SSI $2,000 individual resource limit. If [the] ABLE account exceeds $100,000, [the] SSI benefit payment would be suspended until [the] account falls below $100,000. It’s important to note that while, eligibility for a benefit payment is suspended, this has no effect on [your] ability to receive or be eligible to receive medical assistance through Medicaid.”
Watch this video from the ABLE National Resource Center for more information.