ABLE Accounts: Help Individuals With Disabilities Save Tax-Free

Individuals with disabilities and their families can face significant financial challenges. Until recently, those with disabilities who had more than $2,000 in savings might endanger their federal benefits, such as Supplemental Security Income (SSI), Supplemental Nutritional Assistance for Persons with Disabilities (SNAP), and Medicaid. 

The Able account was established as a result of the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 and is modeled after the 529 education savings plans that help families save for college. The ABLE Act allows individuals with disabilities who qualify, save as much as $14,000 annually tax-free without losing federal benefits. 

Who is eligible for an ABLE Account?

The ABLE Act limits eligibility to who become disabled before turning 26 years of age. If you are within the age criteria and also receive benefits under Supplemental Security Income and/or Social Security Disability (SSDI), you are automatically eligible to open an ABLE account. If you do not receive benefits from SSI and/or SSDI, but you still are within the age criteria, you might be eligible to open an ABLE account if you meet Social Security’s criteria and attain a letter of certification from a licensed physician. 

Key facts of ABLE accounts:

  • ABLE accounts are available nationwide and offer a variety of investing options.
  • Earnings from ABLE accounts grow tax-deferred.
  • Earnings remain tax-free as long as the money is used for qualified disability expenses, which include:
    • Health and Wellness
    • Special-needs transportation
    • Assistive technology
    • Housing
    • Legal and administrative fees
    • Education and job training

If the money is used for something other than a qualified expense, then the beneficiary will have to pay income tax on the portion of the withdrawal that consists of investment earnings and an additional 10% tax penalty.

  • Contributions to ABLE accounts are made on an after-tax basis. 
  • Only one ABLE account can be opened per eligible individual.
  • Parents, guardians, or those with power of attorney can open accounts on behalf of minors or those who need assistance.
  • The beneficiary is the owner of the account, but powers of attorney and legal guardianship will allow others to control the account in the event that the beneficiary is unable or unwilling to administer the account. 
  • The total ABLE account balance can grow to $100,000 without causing the loss of benefits. If the account balance is over $100,000, the individual’s Supplemental Security Income (SSI) payments will be suspended until the account falls below this limit. This will not affect Medicaid benefits. 
  • The total limit of contributions that can be made to an ABLE account over time is tied to each state’s maximum amount for regular 529 accounts (typically around $350,000).
  • Contributions may be made by any person, such as the account beneficiary, family, friend, or an employer. 
  • Contributions may be tax-deductible depending on the specific state ABLE law.
  • A few states require residency to be eligible to open that state sponsored ABLE account. You can visit the website ABLE National Resource Center to find more information.
  • When the qualified beneficiary dies or is no longer disabled, any remaining assets in the ABLE account are used to “payback” any state Medicaid plan up to the value of Medicaid services provided to the beneficiary.

The ABLE Act recognizes the significant costs of living with a disability. Individual ABLE accounts allow eligible individuals the opportunity to save money and fund a variety of qualified disability expenses without endangering other benefits. This may help provide more financial flexibility and security for the many challenges faced by those with disabilities. 

Carol Chaudet

Last Updated (9/28/17)