Welcome to the fourth part in our five part series on ABLE accounts. In the last part, we explained why you may want to open an ABLE account for yourself or your child. In this part, we’ll discuss when you may want to consider opening an ABLE account.

What is an ABLE Account?

Before 2015, blind people who received Supplemental Security Income (SSI), Medicaid, or other government benefits, were only allowed to have up to $2000 in savings to cover emergencies. This all changed with the passage of the Stephen J. Beck Jr. Achieving A Better Life Experience Act of 2014. The law allows states to establish tax-advantaged investment accounts that people with disabilities can use to save to pay for disability-related expenses including housing, transportation, medical expenses, education, and more. SSI and Medicaid recipients can save up to $100,000 in an ABLE account without impacting their benefits.

When shouldn’t I open an ABLE account?

In the previous part in this series, we discussed how compound interest allows your money to grow faster over time. This can help you to save more money than you could on your own, especially over long timescales such as 5, 10, 20, or 40 years. The impact of this is very powerful, and it can be tempting to want to get started right away to earn as much compound interest as possible. There are some situations, though, when it’s necessary to wait until you’re ready before opening any kind of investment account.

You or your family is struggling to make ends meet.

Many families think they’re living paycheck to paycheck because they find themselves with little to no money at the end of each pay period. It’s important, though, to understand whether you’re really living paycheck to paycheck, or whether you simply have not developed good financial habits. A budget is a tool that can help you to decide which camp you fall under and what you need to do to solve the problem.

If you’re truly struggling, a budget can help you to understand exactly how much you need to cut to make ends meet, or how much additional income you need to earn.  On the other hand, your budget  may show that you actually have more disposable income than you thought. This may inspire you to use that extra money more effectively. If your budget shows that you’re truly struggling to make ends meet, then it may not be the right time to open an ABLE account.

You or your family is paying on one or more high interest loans.

The concept of compound interest doesn’t just apply to investments. It also applies to most types of debt including credit card payments, installment loans, student loans, car loans, and mortgages. Rather than earning you money, however, compound interest on debts, if not managed wisely, will cost you money. If you have debts like these, it may not be the right time to open an ABLE account. Instead, you may want to consider using your extra income to pay these debts off more quickly. This may save you more compound interest than you’d end up earning from your ABLE account.

You do not have a solid retirement plan.

Thanks to modern medicine, many of us are living longer than ever before. Unfortunately, however, this doesn’t always mean we’re able to work longer than ever before. As we age, our health and earning potential can deteriorate, forcing us to retire. Even if this doesn’t happen, many of us are forced to reduce our work hours, or stop work entirely, to take care of aging parents or relatives. It’s critical, therefore, to have a solid retirement plan for yourself before starting to set aside money for your children whether or not they’re blind or disabled. A solid retirement plan is the best way to ensure that you’re not forced to depend on your adult children to help you financially during your retirement; something that could cost them a great deal more than paying off their own debts.

When should I open an ABLE account for my child?

If you’ve created a budget and a solid retirement plan, and your budget still shows that you have extra income left over, then it might be the right time to open an ABLE account for your child. If you’re able too, opening an ABLE account as soon as your child’s blindness or disability is diagnosed will earn her the most compound interest possible before she may need to begin spending the money in the account.

The following table shows you how much your child will have if you contribute a small amount each month until she turns 26 and her ABLE account earns a reasonable interest rate:

When should I open an ABLE account for myself?

If you became blind or disabled before you turned 26, then you’re eligible to open an ABLE account. If you’ve created a budget for yourself and it shows that you have extra money available to save, then it might be the right time to open an ABLE account. Opening one as early as you can gives it the longest possible time to grow before you need it. It can be tempting to procrastinate, especially when we’re young and just starting to earn our own money. Compound interest, however, lets us turn a small contribution into a large nest egg later in life. Delaying for too long makes it significantly harder to save the same size nest egg. If you’re able to, consider opening an ABLE account now. You may thank yourself for it later.

Where can I learn more?

In The final part of our series on ABLE Accounts, We’ll provide a detailed answer to this question. In the meantime, the ABLE National Resource Center provides a great deal of information on ABLE accounts. It also provides information about, and links to, all of the state ABLE account programs available. It can be complicated to navigate, but it is generally accessible with a screen reader.