ABLE Accounts: Empowering Financial Security for Individuals With Disabilities

The Achieving a Better Life Experience (ABLE) Act of 2014 introduced a revolutionary tool for financial planning: ABLE accounts. These tax-advantaged savings accounts empower individuals with disabilities and their families to save without jeopardizing their eligibility for critical government benefits.

What Are ABLE Accounts?

The ABLE Act created Section 529A of the Internal Revenue Code, the federal legal framework that establishes the specific rules and requirements of an ABLE account. Think of ABLE accounts as 529 college savings plans designed specifically for individuals with disabilities. People who meet eligibility criteria can open ABLE accounts and contribute funds to save for a wide range of qualified expenses, including:

• Education
  Allowing individuals with disabilities to pursue higher learning or vocational training programs.
• Housing
  Facilitating independent living arrangements or modifications to a current residence to improve accessibility.
• Transportation
  Helping to cover the costs of reliable transportation, including adapted vehicles or public transit passes.
• Employment support
  Paying for job coaching, resume writing services, or assistive technologies needed in the workplace.
• Assistive technology
  Providing resources for specialized equipment that can enhance daily living and independence outside the workplace.
• Health care not covered by insurance
  Helping to manage out-of-pocket medical expenses or therapies.
• Basic living expenses
  Offering a safety net for essential costs such as food, clothing, and utilities.

Benefits of ABLE Accounts

Tax advantages
Contributions to ABLE accounts are not tax deductible at the federal level. However, earnings within the account grow tax free, and withdrawals used for qualified disability expenses are not taxed. This tax-friendly environment allows funds to grow faster, maximizing their impact.

Preserving benefits
One of the most significant advantages of ABLE accounts is that generally they do not count toward eligibility for means-tested benefits such as Supplemental Security Income (SSI) and Medicaid. This distinction allows individuals with disabilities to save without losing essential support systems. They can achieve greater financial security without jeopardizing their access to health care and other vital programs.

Financial independence
ABLE accounts promote self-sufficiency and empower individuals with disabilities to manage their finances and plan for their long-term well-being. The ability to save for improvements in their quality of life and future goals fosters a sense of control and dignity.

Eligibility for ABLE Accounts

To be eligible for an ABLE account, the designated beneficiary (account owner) must have a disability or blindness that began before they turned 26. This requirement is set to change in 2026, expanding eligibility to a broader range of individuals with disabilities whose condition began before age 46. This expansion will be a significant step in reaching more people with disabilities.

Getting Started With Able Accounts

Every state administers its own ABLE program, so specific details and enrollment processes may vary. However, most programs offer user-friendly online resources to guide you through the set-up process. You can find your state’s ABLE program by visiting the ABLE National Resource Center website at https://www.ablenrc.org/.

ABLE accounts are a powerful tool for individuals with disabilities and their families. The accounts offer tax-advantaged savings, preserve eligibility for essential benefits, and foster financial independence.

Standard Annual Contribution Limit

The annual contribution limit for ABLE accounts is adjusted periodically to keep pace with inflation. For 2024, the limit is $18,000. Anyone can contribute to an ABLE account on behalf of the eligible disabled beneficiary, including family, friends, special needs trusts, and even the account owners.

Additional Contribution for Working Beneficiaries

There is an additional contribution opportunity for employed ABLE account owners who do not participate in an employer-sponsored retirement plan like a 401(k) or 403(b). In this case, account owners may be eligible to contribute a higher amount, up to the lesser of these two limits:

• Earned income for the tax year
  This considers total income from wages and self-employment.
• Poverty line for one-person household
  This varies by location. For instance, in 2022, the limit was $12,880 in the continental United States.

Important Considerations

Total account value limit
There’s also a limit on the total value an ABLE account can hold. This varies by state, typically ranging from $235,000 to $550,000. Contributions that push the account over this limit will not be accepted.

Impact on benefits
ABLE accounts offer a fantastic way to save for qualified disability expenses, usually without jeopardizing benefits like SSI. However, funds exceeding $100,000 within the account can affect SSI eligibility. Also, for individuals who received Medicaid benefits when they had an ABLE account open, that state’s Medicaid program can file a claim for some repayment upon death. Before that happens, funds from the beneficiary’s ABLE account may be used by their estate to repay any outstanding qualified disability expenses, including funeral and burial costs.

Additional benefits
ABLE account beneficiaries may qualify for the federal Saver’s Credit for up to $2,000 in contributions to their ABLE accounts.

Choosing Between an ABLE Account and a Special Needs Trust

You may need to decide whether the best fit for your situation is an ABLE account or a special needs trust (SNT), which also allows someone diagnosed with disabilities — or their relatives — to save without affecting their eligibility for other benefits. The best option for you will depend on your specific circumstances.

Here are some things to consider:

• Amount of money you need to save
  If you have a large sum to save and need maximum flexibility in investment options, an SNT might be a better choice.
• Government benefits
  If your beneficiary relies on SSI or Medicaid, an ABLE account might be preferable to avoid jeopardizing those benefits.
• Complexity
  If you want a simpler option with easier management, an ABLE account might be better.

ABLE Accounts vs. Special Needs Trusts

An ABLE account and a special needs trust are both valuable tools for financial planning for individuals with disabilities, but they have distinctive features and purposes: