With the passing of the ABLE Act, states have the ability to create tax-free savings accounts for people with disabilities. Family members can contribute to these savings accounts to ensure their loved ones with disabilities have the money needed for transportation, housing and other qualified expenses.
If you receive or are eligible for Social Security Income (SSI) and/or Social Security Disability Insurance (SSDI), and you developed your disability before age 26, you can open an ABLE account in Illinois.
An ABLE account can ensure you will have the financial resources you need to pay for your future living expenses. If you miss some key stipulations of this account, however, you can end up hurting your finances.
Below are ways you can take advantage of your ABLE account in Illinois while making sure you protect your other financial resources.
Keep Less Than $100,000 in Your ABLE Account
In Illinois, $100,000 is the magic number. If your ABLE account has a balance over $100,000, you’ll lose your SSI or SSDI.
Treat your ABLE account as a supplemental source of income. Your ABLE account shouldn’t be your only financial resource — it should be one part of your financial planning.
Keep Your TOTAL Yearly Deposits to Your ABLE Account Below $15,000 — And Check That Number Yearly
Every year, you can put a maximum of the federal gift tax limitation in your ABLE account. Currently, the federal gift tax limitation is $15,000. This number can change every year, so make sure you check it at the start of the year. You don’t want your total yearly deposit to go over that limit.
If you are planning on receiving a lump sum, such as life insurance death benefit, you can’t put it in your ABLE account.
Don’t Plan on Passing Any Remaining ABLE Account Money to Loved Ones
For future financial planning, you can’t pass on any remaining money in your ABLE account to loved ones. Whatever is in the account at your time of death goes back to the government.
Unlike a Special Needs Trust, other family members cannot use an ABLE account.
Know What Qualified Disability Expenses Are
An ABLE account is a tax-free savings account.
Here’s what tax-free means: You make deposits into the account after taxes. The money grows. You don’t pay any taxes on the money you make from that growth. You can withdraw money for qualified disability expenses without paying any taxes or penalties.
To make sure you don’t get taxed on any withdrawals, you can only use the money for qualified disability expenses. If you withdraw money from your account for expenses that don’t qualify, you will have to pay regular income tax on the growth of your money, along with a 10% penalty and additional Illinois penalties.
What are qualified disability expenses? In short, they’re any expenses related to your health and wellness, getting and keeping your job, your education, your housing, your personal support services and getting assistive technology.
View more information about qualified disability expenses in Illinois.
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