There are many types of accounts for individuals to employ as part of their saving and investment plan – IRAs, HSAs, FSAs, 529 plans, and more. However, there is one account that we haven’t covered before and doesn’t get a lot of attention when considering the alphabet soup of account types – an ABLE account. And while ABLE accounts can be a bit more complex for Wisconsin residents, they offer significant tax benefits for individuals with disabilities and their families. In this piece, we’ll cover the basics of ABLE accounts, as well as what Wisconsin residents specifically should know when considering opening an ABLE account.
What is an ABLE account?
The ABLE acronym stands for Achieving a Better Life Experience. It became law on Dec. 19, 2014. An ABLE account is a tax-advantaged savings account that allows individuals with a disability and their families to save and invest money without losing certain government benefits (i.e. SSI, SSDI, Medicaid). The money in the account grows tax-deferred and income from the account is tax-free when used for qualified expenses.
What are considered qualified expenses for ABLE accounts?
A qualified disability expense is a broad definition that includes things like housing, food, transportation, education, assistive technology, personal support services, healthcare expenses, and financial and administrative services.
Who is eligible for an ABLE account?
Individuals who became blind or disabled before the age of 26 are eligible for an ABLE account.
How much can I contribute to an ABLE account?
The ABLE account contribution amount is capped at $16,000 for 2022. That amount is per beneficiary, not per person (a difference from 529 college savings accounts). For example, each parent and grandparent could contribute $16k to a child’s 529 account. However, for an ABLE account, the TOTAL contribution from all sources (excluding wages earned by the beneficiary) is capped at $16k.
Are ABLE accounts available to Wisconsin residents?
Wisconsin does not have an ABLE program, but Wisconsin residents can establish an ABLE account in another state if that state’s program is open to out-of-state residents. Currently, 28 states offer ABLE accounts open to out-of-state residents.
How do I decide which state I open my ABLE account in?
There are many differences and distinguishing features for each state’s ABLE account, including:
- Annual fees (ranging from $0-45)
- Debit card options (not all programs offer a debit card and some charge a monthly fee)
- Investment options (fund choices range from as few as 4 up to one state that offers 15, but a majority offer 6 different investment options from a variety of financial institutions including Vanguard, Fidelity, BlackRock, Schwab, and others)
- Investment fees (underlying expense ratios for investment funds range from .34%-.94%)
- Account maximums ($234,000-$550,000)
- Account administration (the bank and/or investment company that holds the underlying accounts)
Best state for maximizing account balance
The “best” program is somewhat based on what is most important to the account holder and how the beneficiary will use the account. Virginia is arguably the best state for maximizing an ABLE account balance.
- Annual Fee: $39 (eStatements)
- Debit Card: Yes, no monthly fee (PNC Bank)
- Investment Options: 4
- Vanguard Aggressive Growth Fund
- Vanguard Moderate Growth Fund
- Vanguard Conservative Income Fund
- Fidelity Money Market
- Total Expense Ratio: .36%-.39%
- Account Maximum: $550,000
Best All-Around ABLE Account
When it comes to the plan itself, most National Able Alliance (NAA) Member Plans are the best available option. The breakdown of the basics of those plans is below.
- Annual Fee: $45 (eStatements)
- Debit Card: Yes, no monthly fee (Fifth Third Bank)
- Investment Options: 6 (Mutual funds within each option include a mix of Vanguard, BlackRock, and Schwab funds)
- Aggressive Growth Fund
- Moderately Aggressive Fund
- Growth Fund
- Moderate Fund
- Moderately Conservative Fund
- Conservative Fund
- Checking (Fifth Third Bank)
- Total Expense Ratio: .34%-.37%
- Account Maximum: $305,000-$511,758 (depending on state)
- Includes: Alaska, Arkansas, Colorado, DC, Delaware, Illinois, Indiana, Iowa, Kansas, Michigan, Nevada, New Jersey, North Carolina, Pennsylvania, and Rhode Island (other states are members of the NAA, but have a monthly fee associated with their debit card option)
Can I still get a Wisconsin state tax deduction if I contribute to another state’s ABLE plan?
Yes! As of 2021, there is a subtraction on your Wisconsin income up to the annual gift exclusion limit ($15,000 in 2021, $16,000 in 2022) for the account owner. This subtraction is for money deposited directly into an ABLE account and does not include rollovers or transfers.
How We Can Help
Part of our role as fiduciary financial advisors is to help our clients navigate through investment options and select what is right for them. We have an experienced team of advisors that is here to help you. You can schedule a no-cost, no-obligation appointment with our team here.
Specific account details are subject to change and we are relying on the information from outside sites, which may or may not have completely correct information. You should consult a financial professional and perform your own due diligence on these providers before you make any changes to your own investments. We are not affiliated with the National ABLE Alliance or any of the different state’s ABLE plans.
Alicia Vande Ven, M.S.
candidate for cfp® certification
Alicia Vande Ven is a Candidate for CFP® Certification at Walkner Condon Financial Advisors, a fee-only, fiduciary financial advisor firm based in Madison, WI, that works with clients locally and around the country.