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7 Key Questions about CalABLE Accounts Answered


Published: Jul. 15, 2024Updated: Sep. 13, 2024

Plenty of parents of kids with disabilities worry about how to provide for their kids far into the future — but traditional savings accounts can put individuals over the asset limits for many public benefits programs. For example, individuals receiving Supplemental Security Income (SSI) can’t save more than $2,000 without losing access to their monthly support. Enter ABLE accounts, which are designed for kids like ours to not only save but also invest without putting their public benefits at risk.

We sat down with Madeline Handy to learn all about CalABLE, the California-specific ABLE program. Check out the highlights of our conversation to hear more about CalABLE, how to get started, what to expect, and answers to commonly asked questions.

What is CalABLE?

Handy tells us, “The ABLE part of CalABLE stands for Achieving a Better Life Experience. This is part of the ABLE Act, which is a federal law that was signed in 2014 that enabled states to open these tax-advantaged savings and investment programs that are really designed to help people with disabilities achieve their financial dreams… Really, the point of these programs is that they allow people with disabilities to save money without losing their eligibility for other benefits. And then the money in these accounts grows tax-free and is meant to be used for qualified disability-related expenses, which are really anything that can help somebody improve their quality of life.”

Who is eligible for a CalABLE account?

There are two key criteria for someone to be eligible for CalABLE:

  1. Have a disability that started before age 26
  2. Meet the eligibility requirements for SSI or SSDI

Handy notes that your child doesn’t actually have to be receiving SSI/SSDI benefits; they just need to be eligible, meaning their diagnosis is in the SSA list of compassionate allowances or “blue book.”

She continues, “We recommend that you receive a signed letter from a qualified physician, basically just stating that the onset of the disability was prior to age 26.” Even if you don’t apply for a CalABLE account at this time, Handy says, “We just recommend having it on file in case someone were ever to apply.” CalABLE accounts are tax-free, so this letter from a physician can also be presented to the IRS if you’re ever asked.

How much money can you put in a CalABLE account?

The maximum you can contribute to your child’s account will depend on whether they are receiving SSI/SSDI benefits. Handy explains in this clip:
Handy says, “For those who are working and not contributing to an employer-based retirement plan that calendar year, they can actually contribute an additional $14,580 into their CalABLE account. This can really allow somebody to grow their CalABLE account a lot faster. And so this aspect is really great for people with disabilities who may not be eligible for retirement, employer-based retirement plans, maybe they're only able to work part time either to keep their benefits or because of their disability. And so with ABLE To Work, they're able to save that money for retirement or other needs that come up.”

What can you spend CalABLE money on?

Handy says that CalABLE funds must be spent on “qualified disability expenses,” but this is a wide-ranging category. “I know it's broad,” Handy says. “It is intentionally designed that way so that people can really spend the money in these accounts on the way that can best improve their quality of life.” Listen to her explanation here:

Handy gave these examples of qualified disability expenses:

  • One parent used the funds to provide art therapy and horseback riding therapy lessons “to provide tools for my children, to help them better communicate and relate to the world.”
  • Another parent spent CalABLE funds on a new family vehicle that accommodates their child’s wheelchair. “The money doesn't just have to be used for the person with disabilities. It has to be used for their benefit, but other people can use it,” says Handy. “[The child] is 10 years old. He is definitely not going to be the owner of the car; he's not going to be the one driving it. But because he benefits from that purchase, it is a qualified disability expense.” Similarly, a young adult living with their parents could use CalABLE funds to pay their portion of the rent or mortgage.

The key to a qualified expense is that it needs to benefit the person with a disability, so if purchasing a gift for someone else or gambling, for example, CalABLE funds should not be used. “Really just keep in mind that definition: if it improves health, independence, or quality of life, it is a qualified disability expense,” Handy says.

How do you open an ABLE account?

Although many states have ABLE programs, Handy recommends opening an account through your home state’s ABLE program first because it can provide unique advantages. She says, “For example, in California, CalABLE accounts are protected from Medi-Cal recovery.” If you move to another state in the future, you can roll the account over into a new state’s ABLE program, but you can only ever have one account at a time. You don’t have to live in California to have a CalABLE account, so even if you move, your account is still valid.

“The person with the disability is always the ABLE account owner and beneficiary of the funds,” Handy says, but it can be opened by an authorized legal representative. Who does that include, and what does that mean for you as a parent? Hear her explanation in this clip:

To open a CalABLE account, go to calable.ca.gov and complete the account enrollment process online. Handy says the process takes 20-30 minutes. You’ll be asked to provide your child’s name, Social Security or tax number, address, and other identifying information. You also need to provide your Social Security or tax number. If you need any help through the process, or if you have questions once your account is open, you can call the CalABLE customer service center at 833-225-2253.

It’s important to note that a CalABLE account comes with a maintenance fee of $30 per year. There are also percentage-based fees for using CalABLE investment services, which is optional.

How do you maximize a CalABLE account?

Handy says there are three key ways to help your child get the most out of their account:

  1. Save money
  2. Grow money
  3. Spend money

Contributions and gift contributions

To save money in your child’s account, Handy says, “The easiest way is to link a bank account. You can do electronic transfers, you can also set up recurring contributions as a set-it-and-forget-it sort of thing. There's also the ability to do direct deposit of Social Security benefits and even payroll at work. You can also mail checks to CalABLE.” Child support and SSI payments can be directly deposited into a CalABLE account.

You can also easily set up a way for other people to “gift” money directly to the account so it doesn’t count as your child’s income and interfere with benefits. Here’s how:

Investing with CalABLE

Handy tells us, “A lot of people will say, ‘I'm not on benefits. So is there even a point for me to open a CalABLE account?’” There is: investment! She says, “You can invest some money into professionally managed investment portfolios, and it has the opportunity to grow tax-free. So this is a really fantastic opportunity to build wealth through compound earnings….But the best part of a CalABLE account is that the money can be taken out at any time. So you don't have to wait until a certain retirement age like you would with a Roth IRA or other retirement accounts.”

As Handy explains, CalABLE has multiple different investment options to choose from based on your goals (for example, day-to-day expenses vs. a long-term goal like buying a car) and how comfortable you are with risk. You can even have multiple portfolios going at once. There are fees for these services, which Handy says hopefully are outweighed by the growth of the money in the account.

Accessing CalABLE funds

Once you have a bank account linked to your child’s CalABLE account, you can do an electronic transfer, but accounts also provide a prepaid, reloadable Visa card (with no fees!) that can be used to make purchases. Check out Handy’s explanation of why using the prepaid card (and eventually teaching your child how to use it) is a great idea:

What’s better, a CalABLE account or a special needs trust?

Handy says, “We get this question all the time: Should I open an ABLE account or should I open a special needs trust? And really the answer is it's not either/or. It's a yes/and. We definitely recommend looking at both.”

The main differences are that a CalABLE can be opened quickly and has a low annual maintenance fee, but there are limits on how much you can contribute. A special needs trust has higher upfront costs because you’ll need an attorney, but there’s no limit to how much money you can save. You can learn more in our article ABLE Accounts and Creating a Special Needs Trust in California.

Watch the full replay

Thank you to CalABLE Outreach Specialist Madeline Handy for teaching us all about CalABLE accounts!

You can watch the full replay of our event here (with transcript available), where we go into more detail and also answer some questions that parents asked in the chat during our livestream.

Be sure to sign up for our newsletter to learn more about upcoming free events, and join our private Facebook group to get your questions answered by fellow parents in our supportive community.

Contents


Overview

What is CalABLE?

Who is eligible for a CalABLE account?

How much money can you put in a CalABLE account?

What can you spend CalABLE money on?

How do you open an ABLE account?

How do you maximize a CalABLE account?

What’s better, a CalABLE account or a special needs trust?

Watch the full replay
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Brittany OlsenUndivided Content Editor

Reviewed by Lindsay Crain, Undivided Head of Content and Community

Contributor: Madeline Handy, CalABLE Outreach Specialist


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