Disabled Americans face many financial hurdles, and the high cost of medical care may be the biggest.
And sometimes even the amount they are allowed to earn.
This post will introduce one of those rare silver linings in disability finance.
An ABLE account can help withfinancial planning for parentsraising a child with special needs.
The money saved can be used for medical costs or any other expenses.
In addition to the perks of sheltering your assets, ABLE accounts also provide great tax benefits.
As long as the money is used for qualified expenses, you wont pay any taxes on interest accrued.
And in some states, your contributions are even tax deductible.
Another thing that makes ABLE accounts stand out is that one of their qualified expenses is housing costs.
No Interest Til Almost 2027?
In some states, those contributions will be 100% deductible on your state tax returns.
Lets say you make $40,000/year, and pay $1,100/month in rent as a Pennsylvania resident.
That adds up to $13,200/year in housing expenses.
Thats $13,200 in annual contributions to your ABLE account.
Every month, you write your rent check with the checkbook provided for your ABLE account.
You also have to remember that there are fees associated with the ABLE account.
First, your checkbook will cost $6 in Pennsylvania.
Because youre not investing, you wont have to pay any investment fees.
Did you know?
Currently, Pennsylvania income tax rates are 3.07%.
That means your tax due would go down from $1,228 to $821.
Youve paid $51 in ABLE-related fees, but saved $407 on your taxes.
That makes your total overall savings $356/year.
This math is valid only for the state of Pennsylvania.
Will This Help Me Save Money on Federal Income Taxes?
You cannot deduct contributions to an ABLE account on your federal income tax return.
But contributions to an ABLE account do currently qualify for theSavers Credit.
The Savers Credit is nonrefundable.
That means it will reduce your tax burden dollar-for-dollar until you reach $0.
But if you owe $0 in federal taxes, the Savers Credit wont do anything for you.
What If My Housing Costs Are More Than $16K a Year?
You may even be investing the money in your ABLE account to fund things like college or retirement.
Which States Allow This Tax Strategy?
Not all states offer a state tax deduction for contributions to an ABLE account.
However, there are a number of states which allow limited deductions on your state tax return.
Is It Worth Using an ABLE Account to Pay My Housing Expenses?
As people who pinch every penny, wed argue thats well worth the effort.
She is a regular contributor to The Penny Hoarder.
