By Justin King
For many Americans living with disabilities, it has been a good week: now that the Senate passed the Achieving a Better Life Experience (ABLE) Act this week (following the House's passage in early December) it is now on its way to the President to be signed into law. The ABLE Act creates tax-advantaged savings accounts for use by individuals with disabilities. Critically, savings in ABLE accounts won't disqualify those individuals from receiving public assistance. While the bill is a win for many individuals with disabilities and their families, there are millions of others who are left out and need additional measures to pursue the same goals — financial security and upward economic mobility.
What does the ABLE Act do for disabled Americans?
The ABLE Act (H.R. 647/S. 313) creates savings accounts for use by individuals with disabilities where deposits are able to grow tax-free. ABLE builds off of an existing part of the tax code that allows states to offer similar accounts, dedicated to post-secondary education, called 529 College Savings Accounts. When ABLE Accounts are created (starting in 2015) qualifying individuals and their families will be able to open an ABLE Account and deposit up to $14,000 annually. As in the 529 model, those funds can be invested with more or less risk and growth potential, according to the vendor, state, and choice of the account holder. ABLE Accounts are effectively limited to $100,000, as larger amounts would cause the account holder to lose eligibility for public assistance.
Funds in the ABLE Account can be used for "qualified disability expenses," which means "any expenses related to the eligible individual's blindness or disability." These uses explicitly include: education, housing, transportation, employment training and support, but include a fairly broad array of other expenses.
Why is this necessary?
Living with a disability is more expensive than living without one. There are added costs for wheelchairs, accessible vans, medical supplies and care, as well as myriad other unpredictable costs. In addition, savings are a key tool to promote family financial stability and upward economic mobility for children. The ABLE Act is a recognition of these additional costs, and the importance of savings, and creates a tool to satisfy these needs for those with disabilities.
You might be asking - what's stopping people with disabilities and their families from saving right now? Existing bureaucratic rules in Supplemental Security Income (SSI) and Medicaid (the primary means of assistance for the severely disabled) restrict individuals from having a meaningful savings cushion. In the case of SSI, this level is set at $2000 in financial assets for an individual or $3000 for couples. Those asset limits have not been adjusted since 1989 and their value has been cut in half by inflation. On top of managing life with a disability, these individuals have to live with the fear that an extra dollar in the bank will cut them off from their medical and financial lifeline and have had to watch that threshold shrink by the year. To see what this all means in real life, read this Vox excerpt of Andrea Campbell's remarkable book, Trapped in America's Safety Net, or watch her talk about it when she visited New America.
Will these accounts make a difference?
Some disability rights advocates are calling ABLE a major victory for individuals with a disability and their families. As the asset building field has long maintained, savings matter. They allow families to handle the ups and downs of everyday life, fixing a car, replacing a broken hot water heater, effectively. More importantly, savings are strongly connected to the long-term well-being of all members of the household. Children are more likely to be economically mobile if they grow up in households that save; they're also more likely to go to college if they have some savings. Asset limits in disability programs don't just afflict the individual with the disability, they impact every member of that household negatively. ABLE takes a bite out of asset limits for the disabled for the first time in 25 years.
Are ABLE accounts going to work for all people with disabilities?
There are real shortcomings to reaching savings goals through tax-advantaged account structures, as we've seen with 529s. Fees can be high and opaque. Opening an account can be daunting. The tax benefits give more to those with high incomes. Less than three percent of American families save in a 529, and those that have 529s have about 25 times the median financial assets of those without an account. These issues are likely to be replicated with ABLE accounts. Those with family members who can afford to make $14,000 per year in contributions are more likely to benefit than others.
In order to save money, Congress limited access to ABLE Accounts to those who become disabled before their 26th birthday, excluding millions of disabled individuals from owning accounts. The disabled are often excluded from mainstream aspects of life, now this new tool to empower individuals with disabilities is available only to some. Others, for example a 31-year old who was paralyzed in a car accident, will still have to live with the same asset limits as if the ABLE Act never passed.
What Comes Next?
Speaker of the House John Boehner, upon passage of the ABLE Act, said:
This won't just make it easier for individuals with disabilities to save — it will help build a stronger economy and secure a better future for our country. After all, the principle that anyone can succeed no matter where they start is what gives the American Dream its staying power. The problem is, we're letting outdated laws place arbitrary limits on the very people who show us what can be done with perseverance.
The Speaker is correct, our laws place arbitrary limits on the ability of all manner of Americans to save and pursue the American Dream. Asset limits are intended to serve as a check to keep the well-off from receiving public assistance, but the real impact of these rules is to prevent savings, discourage work, and increase red tape for people who are struggling. The ABLE Act offers a way out for some, however millions of disabled individuals will not benefit from ABLE. Millions more struggling against poverty are discouraged from saving by asset limits in assistance programs for the non-disabled. Encouraging savings can build a stronger economy and secure a better future for our country. It is time we started acting like it.
Justin King is policy director of the Asset Building Program at the New America Foundation.