The ABLE Account: The Tax-advantaged Savings Account for Individuals with Qualified Disabilities

In the United States, living with a disability can be a double-edged sword financially. It’s widely known that there are high additional costs to live with a disability and for those who support individuals with a disability. Luckily, public benefits Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), Medicaid provide financial support and subsidies for individuals with a disability to improve their quality of life. However, these public benefits also come with a means test that restricts eligibility, and the benefits are available only to individual beneficiaries with less than $2,000 in liquid resources–cash savings, non-ABLE checking accounts, savings accounts, and some retirement funds. That means that if an individual with a disability saves more than $2,000 in most general accounts, they can lose access to these benefits, which may be their primary financial support.  This issue is paramount for individuals and their families who are looking to save for future expenses.

This week’s article will introduce and break down one of the most underutilized financial vehicles for individuals with disabilities and their families, the ABLE Account.

What is an ABLE account?

An ABLE Account is a tax-advantaged savings account for eligible individuals with qualified disabilities. The “account owner” is the beneficiary of the account, and each owner can have only one account. The income earned (e.g., interest) in the account is not taxable. Any person (e.g., family, friends, the beneficiary, etc.) can contribute to the ABLE Account.

Who is eligible for an ABLE account?

Individuals who developed a qualified disability before turning 26 years old are eligible for an ABLE Account. If an individual is older than 26 but developed their disability before age 26, they can still open an ABLE Account.

You can open an account entirely online or directly through the participating banking institutions in each participating state.

Are there contribution limits on an ABLE Account?

The annual contribution limit into an ABLE account is $15,000. If the funds in an ABLE Account exceed $100,000, this may impact the SSI eligibility for the account owner. Note that in addition to the annual contribution limit, each state has its own specific ABLE account balance limit (e.g., $396,000 in Montana, $500,000 in Texas).

What can you buy with the funds in an ABLE account?

Funds in an ABLE Account can be spent on “qualified disability expenses” (QDE). QDE’s are defined as any expense related to the account owner’s disability that assists them in increasing and/or maintaining their health, independence and/or quality of life. Account owners can cover expenses such as assistive technology, health care expenses, home modifications, transportation, housing, employment training, and more.

What are some practical uses for an ABLE account?

1. 1. Providing Financial Control: The account owner can make final financial decisions,  including how to spend, invest, and save the funds in the ABLE Account. This autonomy differs from a special needs trust, where every expenditure must be approved.
   2. Paying for household expenses: An account owner can use funds from their ABLE Account on utilities and housing expenses and this will not incur an SSI      “in-kind support and maintenance” (ISM) penalty.
   3. Shielding Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) Account Funds: Once a child with a disability becomes an adult, if they have a savings account and/or funds in a UGMA/UTMA account, those funds will be counted towards determining eligibility for public benefit programs. If funds are moved from these accounts to an ABLE Account, they will not be counted for eligibility. 

Can I invest the funds contributed into an ABLE account?

Yes! An ABLE account is like a 529-college savings plan where individuals can create investment strategies to meet their risk tolerance. Individuals can only change their investment allocations twice a year.

What are the ABLE Account guidelines per state?

There are 46 states that offer an ABLE Account plan. Those states offer different account balance caps and requirements. If an Account Owner is a resident in a state that does not offer an ABLE Account, s/he/they are eligible to open an account in another state. You’re able to check evaluate each state’s ABLE Account plan here.

Follow this link and select the state to find additional state-based information including but not limited to:

1. Annual Contribution Limit
2. Banking Institutions
3. Investment Options
4. State program at a glance

Where can I find more information on ABLE accounts?

1. 1. ABLE National Resource Center
   2. The Indicator from Planet Money (podcast): Revisiting the ABLE Act
   3. IRS: ABLE Accounts - Tax Benefit for People with Disabilities
   4. ABLEnow Mobile App – The first mobile app offered by an ABLE program, providing a convenient way to access and manage an ABLEnow account from an iOS or Android device.
   5. ABLEnow Mobile Wallet – Now, account owners can pay for qualified disability expenses with their phone by adding their ABLEnow Card to their mobile wallet.