Main Logo
Colorado ABLE Account
Special Needs Planning

Colorado ABLE Accounts: What are they, How to Open one, and How to Use them

Introduction to Colorado ABLE Accounts

What is an ABLE account?

ABLE accounts are pioneered under the ABLE Act meant to provide individuals with qualified disabilities a tax-advantaged way of saving for disability-related expenses. To get the basics of ABLE accounts, these savings platforms were established under the guidance of the ABLE Act. They are meant to empower individuals with qualified disabilities by providing a tax-advantaged way of saving for disability-related expenses. These accounts allow the account owners to maintain federal government benefits while concurrently building up savings for their future needs. It’s a form of guidance much needed for people with disabilities to have a secure, financially stable future.

Why choose a Colorado ABLE account?

Choosing a Colorado ABLE account presents several tantalizing benefits. Primarily, it serves as a fantastic college savings plan while also acting as a superb financial planning tool for people with disabilities. Offering substantial tax advantages for disability-related expenses, such as a state tax deduction for contributions made, increases its allure. This program, seamlessly executed by CollegeInvest, ensures that your savings do not disqualify you from receiving federal benefits, giving you the added benefit of a state income tax deduction. Furthermore, the diverse investment options managed by renowned firms like BlackRock, Schwab, and Vanguard provide you the flexibility to grow your wealth according to your risk tolerance.

Knowing Your Eligibility

Who is eligible for the plan?

Eligibility for a Colorado ABLE account hinges on a few necessary criteria. To qualify, one must be a US citizen and a Colorado resident diagnosed with a disability present before age 26. Eligible individuals, also known as beneficiaries, can open an account either for themselves or have an authorized person do it on their behalf. Importantly, to maintain eligibility, beneficiaries must be entitled to SSI or SSDI due to their disability. Beneficiaries should note that the first $100,000 is exempt from the Supplemental Security Income limit, and they will continue to receive Medicaid regardless of account size.

How Health Benefits Work with an ABLE Account

ABLE accounts are designed with federal benefits in mind. These include vital programs like Medicaid and Medicare services. Interestingly, savings tucked away in an ABLE account up to $100,000 will not affect your Supplemental Security Income (SSI) eligibility, nor will it impact your cherished Medicaid coverage—even if you decide to medicaid buy into more benefits— regardless of the account size. This means that you can confidently save for disability-related expenses without any dread over losing your health and financial benefits. It ushers in a sense of financial peace of mind that people with disabilities immensely need. [A simple infographic explaining how health benefits won’t be affected by ABLE savings would be perfect here.]

Sharpening Your Knowledge on Contributions and Distributions

Yearly Deposit Limits Explained

When contributing to Colorado ABLE accounts, two deposit limits apply:

  1. Up to $17,000 in total deposits from any source: This includes contributions from the individual, their family and friends, benefits, and other unearned income.
  2. Additional deposit limit for employed individuals: If you’re employed, you can deposit another $13,590 of your own earned income into your account. But remember, this must be from your own earnings, and if you earn less than $13,590, the amount you can contribute would be lower. However, note that if you or your employer contributes to a retirement plan, it might affect this extra contribution limit.

Together, these limits help regulate the amount of money you can put into an ABLE account, ensuring that it doesn’t excessively build up, while still offering a substantial saving capacity for disability-related expenses.

Moving Money from 529 Accounts to ABLE Accounts

Moving money from a 529 account to an ABLE account is a beneficial strategy if the funds are no longer needed for educational expenses. The 529 account must be in the name of the individual who is the ABLE account owner or their family member. Money can be rolled over tax-free, avoiding penalties. However, this rollover counts towards the annual deposit limit from all sources, other than your earned income, which is $17,000 for 2023. This strategy is ideal if there are funds in a 529 account that would otherwise be unused, allowing it to be utlized for qualified disability-related expenses instead. Consider Maria’s case as a valuable example of such a scenario.

Distributions & Terminations

The funds in a Colorado ABLE account can be distributed tax-free for qualified disability expenses. These include a wide array of expenses linked to maintaining the beneficiary’s health, independence, and quality of life. Examples could be education, housing, transportation, employment training, assistive technologies, personal support services, healthcare, and more.

However, non-qualified distributions are subject to regular income tax and an additional 10% penalty on the earnings part of the distribution.

In the event of the beneficiary’s death or loss of eligibility status, the account will be terminated, and remaining funds may be subject to a Medicaid Estate Recovery claim. If the ABLE account is closed for other reasons, penalties and taxes might be applicable.

Exploring Investment Options

A Snapshot of All Available Options

As an owner of a Colorado ABLE account, you get to choose from a variety of investment options, including:

  1. Bank Money Market Investment/Checking Option: An excellent starting point for anyone new to investing but still want a safer, bank-backed investment.
  2. Moderate Portfolio: Suitable for investors who want a balanced mix of equities, bonds, and money market funds.
  3. Growth Portfolio: Ideal choice for anyone who is able to tolerate more risk in exchange for potentially higher returns.
  4. Aggressive Growth Portfolio: Perfect for those who are comfortable with significant market volatility and aim for high capital growth over a long-term horizon.
  5. Conservative Portfolio: A great option for those who prioritize capital preservation over high returns.

Remember, these options are managed by top-tier firms, ensuring you are supported by the very best.

How to Sign-Up for An Account: Detailed Guide

Required Documents, Access & Reporting

To open a Colorado ABLE account, you’ll need certain documents and information:

  1. Social Security Number or Tax Identification Number of the account owner (beneficiary).
  2. Personal information of the account signer (if differs from the owner), including their Social Security Number or Tax Identification Number, Date of Birth, and legal address.
  3. A chosen password for account access after it’s set up, providing an email address where you can receive vital notifications from would also be beneficial.

As an account owner, you’ll be given online password-protected access to your account which can be completed and funded fully online, further enhancing accessibility and convenience through real-time email updates.

In terms of reporting, remember that while your ABLE account earnings aren’t taxable, you still need to report distributions to the IRS through form 1099-QA and ABLE contributions through form 5498-QA. Should you lose your password in this process, worry not, as the ‘forgot your password?’ function will be available if you provided your email during account setup.

Extras you Should Know

Other Benefits of Having an ABLE Account

Outside of the financial advantages ABLE accounts bring, there are several other benefits you will enjoy:

  1. Flexibility: Use your funds for a broad range of qualified disability expenses.
  2. Control: Manage your finances and significantly augment your savings for disability-related expenses without affecting federal benefits.
  3. Ease: Convenient online access and management of your account.
  4. Empowerment: Spark a sense of independence and financial power.
  5. Gifting Opportunity: Family and friends can directly contribute to your account, making it a thoughtful gift option for holidays, birthdays, or anniversaries.

Overall, an ABLE account can be a powerful tool helping to ease the financial pressures that often come with living with disabilities.

Fees & Expenses Associated

Just like any financial product, Colorado ABLE accounts come with certain fees and expenses:

  1. Enrollment Fee: Colorado ABLE account has no application or enrollment fees.
  2. Account Maintenance Fee: The account incurs a $45.00 annual maintenance fee, payable quarterly at $11.25. If you opt for paper statements instead of electronic ones, the annual fee goes up to $60.00.
  3. Program Management Fees: ABLE accounts also incur asset-based fees, ranging from 0.34% to 0.38%, depending on your chosen investment options.
  4. Debit Card Fee: There’s a $2.00 monthly fee if you choose to utilize the debit card option. However, these fees can be waived if the average daily balance exceeds $250.00.

Thanks to their relatively low cost, ABLE accounts are a viable savings option for those with disabilities.

FAQ Section

Are there any restrictions on spending ABLE account funds?

ABLE account funds should be used for “Qualified Disability Expenses,” which are part of maintaining a person’s health, independence, and quality of life. These include education, housing, transportation, employment training, assistive devices, legal fees, and financial management. Although there’s flexibility on what counts as a qualified expense, misuse of the funds for non-qualified expenses may result in taxes and a 10% penalty on the earnings portion of the withdrawal.

Can I switch my ABLE account to another state’s ABLE program?

Yes, you can roll over your Colorado ABLE account to another state’s ABLE program. While federal law permits rollovers every 12 months, individual state programs may have their own unique rules, including possible fees, for incoming and outgoing rollovers. It is crucial to research and fully understand these rules before initiating a rollover.

What happens to the ABLE account when the designated beneficiary dies?

Upon the death of the ABLE account holder, the remaining balance will be used to reimburse Medicaid for the medical care benefits that were provided to the beneficiary after the establishment of the account. After the reimbursement, the remaining funds are then disbursed to the individual’s estate. There may, however, be tax implications, and possibly a 10% additional federal tax for non-qualified distributions. It’s essential to consult with a financial advisor or an attorney to understand these implications.