Stimulus Update: How the Child Tax Credit Can Help Parents of Disabled Children Protect Their Futures

As the parent of a disabled child, you may have an additional set of concerns. Here's how the Child Tax Credit can help alleviate them.

The first Child Tax Credits hit bank accounts across the country in mid-July. Suddenly, parents had to decide the best way to use those funds. Unless they opt out, families will receive $300 per month for children under the age of 6 (on Dec. 31, 2021), and $250 per month for children between the ages 6 and 17.

If you have an immediate need for the monthly Child Tax Credit, it's there for you. If you have a child with a disability and do not have an immediate need for the funds, it's possible to make the money work on your child's behalf. It starts by opening an ABLE account.

What is an ABLE account?

ABLE -- an acronym for Achieving a Better Life Experience -- was signed into law by President Barack Obama in December, 2014. The goal was to provide families a way to save money for children deemed disabled. Before The ABLE Act was passed, individuals who received benefits like SSI and Medicaid could not save more than $2,000 without losing their benefits. In addition to impacting their access to healthcare, these individuals risked losing benefits like housing, transportation, and even employment. In other words, having more than $2,000 put away could upend their entire lives.

The ABLE Act makes it possible for disabled individuals to save money without running the risk of losing the benefits that help them achieve independence.

Nuts and bolts

Using an ABLE account to help your child with things they may need later in life is not difficult. It does, however, require that you follow specific guidelines. For example:

• Your child must be younger than 26. If you have not already, you must file a disability certification with the IRS or have a signed physician diagnosis. The doctor's note must state that your child has a physical or mental impairment that is expected to last for at least 12 months. If your child is blind, the doctor must attest that blindness occurred before the age of 26.
• An ABLE account must be set up under a qualified ABLE program, established and maintained by a state agency.
• The annual contribution limit is currently $15,000, or $1,250 per month. While it is periodically increased for inflation, it does not appear to have been increased since the signing of the Tax Cuts and Jobs Act of 2017. You should be careful not to exceed this limit as there is a 6% penalty tax on excess contributions.
• The ABLE account is an investment. As such, it allows you to make changes to the investments twice a year.
• You can set up and make contributions to an ABLE account in any state, regardless of where you live.
• There are no income limits for the contributors. In other words, you can contribute no matter how much you earn.
• While you cannot deduct ABLE account contributions from your federal income taxes, you may be able to deduct them from your state income taxes.
• Each state has set a limit for the total amount that can be saved in an ABLE account. These totals range from $235,000 to $529,000. However, if your child receives SSI, the ABLE Act exempts only the first $100,000. Once there's more than $100,000 in the account, SSI benefits are suspended. When the account drops back down below $100,000, benefits are reinstated. Note: Having SSI benefits suspended does not impact medical assistance through Medicaid.
• If your child works but does not participate in an employer sponsored retirement plan, they can contribute up to the amount they earn that year, or up to the U.S. poverty line amount of $12,760 ($14,680 in Hawaii and $15,950 in Alaska).

How it benefits your child

Say you open an ABLE account now and fund it with the Child Tax Credits received through the remainder of the year. Maybe you continue to use any Child Tax Credits you receive in the future to build the fund. One day, when your child needs it most to pay for expenses associated with their disability, they have money available -- distributed tax free. Here is a sampling of what your child can use money from their ABLE account to cover:

• Housing
• Education
• Employment training and support
• Assistive technology
• Legal fees
• Transportation
• Personal support services
• Financial management services

$250 or $300 per month may not seem like much, but there are plenty of lawmakers pushing to make the expanded Child Tax Credit permanent. If that happens and you have a young child, you have years to build an ABLE account. Even if your child is a young adult, every dollar added to an ABLE account can assist them down the road.