For many people, Social Security disability benefits may cover short-term expenses. However, Social Security disability benefits likely do not help a person achieve long-term financial security. In fact, many who receive disability benefits would lose their benefits if they had more than $2,000 worth of assets.
The Achieving Better Life Experience Act (ABLE Act) could change this though. This bill was created a year ago and aims to make it possible for those receiving disability benefits to open a tax-free savings account. Currently, there is a significant amount of bipartisan support for passing the bill. Advocates from several large organizations, including the National Down Syndrome Society and Autism Speaks are working to gain even more support.
If the bill is passed, people with disabilities could create tax-free savings accounts similar to the 529 college savings plans used by parents. So, interest earned on savings would not be taxed. An additional benefit is that the accounts could hold as much as $100,000 in savings.
For adults with low to no earning potential this account could be very helpful. For instance, savings that go into the account could be used to cover medical or housing costs that disability benefits and insurance do not cover. If a person loses the ability to work or does not have family to help, this type of savings account could be invaluable.
In addition, parents often create special needs trusts to take care of their children's finances once they are adults. However, this new type of savings account would enable parents to set aside money for their disabled children without having to create a trust.