Record Keeping and ABLE Accounts

As long as the money in your Alabama ABLE account is used for eligible expenses, it won’t be counted as income for your state or federal taxes. But, if a purchase doesn’t qualify as an eligible expense, you’ll have to pay income taxes and a ten percent (10%) penalty on the amount.

A qualified eligible expense is defined as: most costs related to living with a disability qualify, especially things that and are geared toward improving health, independence, and quality of life, like:

• Living expenses

• Education

• Housing

• Transportation

• Employment, training, and support

• Assistive technology

• Personal support services

• Health, prevention, and wellness

• Financial management

• Administrative services

• Legal fees

• Oversight and monitoring

• Funeral and burial costs

• And more – provided the expenses relate to the beneficiary’s disability and are made for the benefit of the designated beneficiary

I often get asked; how do I know if a purchase does not qualify? The answer is unclear as so many things are covered. ABLE accounts were enacted by Congress in 2014 and the truth is that they have not been around long enough to know exactly how the IRS will handle them.

The general rule is that you do not need proof of your expenses, but you should have it for your records as the IRS may require you to provide proof of qualified disability expenses in the case of an audit.

That still sounds vague, right?

My general rule when speaking with parents is to do what I do with my children’s accounts (yes, all three of my kids qualify for and have ABLE accounts because that’s how strongly I believe in them). We scan every receipt, save them in a folder on our computer and save them to the cloud. For major purchases, we’ve created a simple excel spreadsheet and we track the major purchases there in case we forget what the major (major being anything other than food, clothing, medication, doctor appoints, etc.) purchase was. We log the date, the amount, the vendor, and a general description of the item. We scan the receipt if there is one and we keep record of it. That way, if we do get audited down the road by the IRS, we have the necessary records and details to verify what the purchase was for and the amount to verify it.

If you have any questions, feel free to reach out to the author of the blog, Jenny McInerney at JMcInerney@ParmerLaw.com.

Jennifer McInerney
Attorney at Law
Parmer Law