Unveiling the Features and Benefits of ABLE Accounts for Individuals with Disabilities
There are a few specialized financial tools for individuals with disabilities. ABLE (Achieving a Better Life Experience) accounts are one of those options. ABLE accounts are specialized savings accounts designed to help individuals with disabilities and their families save and invest money for disability-related expenses.
ABLE accounts were created with the passage of the ABLE Act in 2014 and are intended to provide individuals with disabilities a way to save funds without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). As Medicaid and SSI are needs-based programs, traditional savings or assets could potentially disqualify someone from these programs by exceeding certain resource limits. With ABLE accounts, individuals can save up to the allowed limits without jeopardizing their eligibility for critical benefits.
Let’s dive into some key features and benefits of ABLE accounts:
Eligibility: To be eligible for an ABLE account, an individual must have developed a disability before the age of 26 (currently). The disability can be physical or mental, and it must significantly impair the person’s ability to function in daily life. With the passing of Secure Act 2.0, in 2026, the eligibility age will be adjusted to 46. For example, if a person is age 52 but they had a disability that developed before age 46, they would now be eligible for an ABLE account.
Tax-Advantaged Savings: Contributions to ABLE accounts are made with after-tax dollars, but the earnings on the account grow tax-free. Withdrawals are also tax-free if they are used for qualified disability expenses. This tax advantage allows the savings to potentially stretch further when it comes to meeting disability-related needs. In addition, some states also offer a state income tax deduction or credit for contributions made to an ABLE account.
Contribution Limits: The maximum annual contribution limit varies from state to state but is generally aligned with the annual gift tax exclusion amount, which is currently $17,000 as of 2023. This annual contribution amount can come from the beneficiary or other people but cannot exceed the annual limit.
In addition, if a beneficiary is working and earning taxable income, they may also contribute to their ABLE account an amount equal to the lesser of their compensation for the year or the Federal Poverty limit for a one-person household ($13,590 in 2023). The beneficiary may only make this contribution if they are not participating in any employer sponsored retirement plan.
The current tax law also allows for a rollover from a 529 plan to an ABLE account up to the annual limit amount. Any amount transferred will count towards the annual contribution for the year in which you roll over funds.
Supplemental Security Income (SSI) Impact: The first $100,000 in an ABLE account is excluded from the SSI asset limit. If the account balance exceeds $100,000, the excess will count against the beneficiary’s resource limit for purposes of SSI. However, Medicaid eligibility will not be affected regardless of the account balance, providing crucial healthcare coverage.
Medicaid Payback provision: An ABLE account has a potential payback to the State Medicaid Agency for Medicaid provided to the beneficiary from any monies remaining in the account at the beneficiary’s passing. This rule has some State discretion, when researching an ABLE program consider that some States do not seek recovery from account holders that are also residents.
Qualified Disability Expenses: ABLE accounts provide flexibility in how the funds can be used. Qualified disability expenses cover a wide range of needs, including education, housing, transportation, healthcare, assistive technology, employment training and support, and more. The account owner can determine how to allocate the funds based on their unique circumstances and priorities, enabling them to tailor the savings to meet their specific needs and goals.
Financial Empowerment: ABLE accounts promote financial empowerment and independence for individuals with disabilities. By having control over their own funds, they can make decisions about how to allocate the savings to address their specific disability-related expenses. This level of financial autonomy can increase self-determination and improve the overall quality of life.
Inter-State Portability: ABLE accounts are generally portable, meaning that an individual can open an account in any state that offers an ABLE program. This flexibility empowers individuals to select the state program with desirable features, investment options, fees, and other factors, even if it differs from their state of residence. It is important to note that each state operates its own ABLE program (similar to 529 plans), and the specific details and features of the accounts may vary from state to state. It is advisable to research and compare the offerings of different states’ ABLE programs to determine which one aligns with your specific requirements.
ABLE accounts can be a powerful tool for individuals with a disability to improve their quality of life. Understanding the features, benefits and researching the different types of plans that are available can be the first step. See the ABLE National Resource Center for more information. In addition, consulting with a financial advisor specializing in special needs planning or an attorney specializing in disability law can provide more personal guidance on what may be suitable for your unique situation.