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 living with a disability and for those who support individuals with a disability. Luckily, public benefits Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI Benefits), and 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?

The Stephen Beck Jr. Achieving a Better Life Experience Act of 2014, commonly known as the ABLE Act, was a groundbreaking piece of legislation for the disability community, comparable in importance only to the Americans with Disabilities Act. With strong bipartisan backing in both the Senate and the House, the ABLE Act marked a significant milestone by creating ABLE accounts and offering new financial planning tools for individuals with disabilities.

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.

It’s important to note that eligibility isn’t just limited to physical disabilities; it also encompasses a wide range of qualifying conditions recognized under the Social Security Administration’s definition of disabilities. This includes, but is not limited to: intellectual disabilities, severe mental health disorders, and other significant impairments that meet the government’s disability criteria.

Documentation of the disability is a critical step in the process. Prospective account holders must provide proof of their condition, such as a diagnosis from a qualified physician or evidence of receiving benefits through programs like Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). This documentation ensures that ABLE accounts are accessible to those who truly need them, offering financial empowerment and independence.

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 to 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, and $500,000 in Texas).

What Can You Buy with the Funds in an ABLE Account?

Funds in an ABLE Account can be spent on transactions deemed as a “qualified disability expense” (QDE). QDEs 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 qualified disability expense purchases such as assistive technology, health care expenses, home modifications, transportation, housing, employment training, and more.

How to Use Funds in an ABLE Account

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.

Comparing ABLE Accounts and Other Financial Tools

ABLE accounts offer unique benefits compared to traditional financial tools, making them an essential part of financial planning for individuals with disabilities. Unlike regular savings accounts, ABLE accounts do not affect eligibility for most federal benefits like Medicaid and Supplemental Security Income (SSI), provided the account balance does not exceed certain limits. This is a significant advantage, as individuals can save beyond the $2,000 resource limit typically imposed by these programs without jeopardizing their benefits.

Furthermore, ABLE accounts offer tax advantages. Contributions to an ABLE account are made with post-tax dollars, but the earnings grow tax-free, and withdrawals for qualified disability expenses are not taxed. This feature sets ABLE accounts apart from other savings vehicles, such as traditional or Roth IRAs, where there might be tax implications or penalties for early withdrawals.

Additionally, ABLE accounts provide more autonomy and control over funds compared to special needs trusts, which require a trustee to oversee and approve expenditures. This can empower individuals with disabilities to manage their own finances and make decisions about their needs.

What are the ABLE Account Guidelines per State?

46 states 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 and 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

Step-by-Step Guide to Opening an ABLE Account

Opening an ABLE account is a straightforward process designed to be accessible for all. Here’s how you can get started:

Check Eligibility: Ensure the individual with a disability became disabled before the age of 26 and meets the necessary criteria for significant functional limitations as defined by the Social Security Administration.

Select a State Program: Although 46 states offer ABLE accounts, not all require residency, so review different state programs to find one that suits your needs best, considering factors like fees, investment options, and account balance limits.

Gather Necessary Information: Prepare personal information, including the Social Security number of the beneficiary and the person with signature authority if the beneficiary is a minor or unable to manage the account.

Choose Your Investment Options: Decide how you want the account's contributions to be invested. Many programs offer a range of options from conservative to aggressive investment strategies.

Complete the Application: This can typically be done online through the selected state's ABLE program website. Fill out the application form with all required details and submit it as directed.

Fund Your Account: You can start making contributions once your account is open. Remember, anyone can contribute to the ABLE account, but the total annual contribution is capped at $15,000 from all sources.

Start Using Your Account: Use the funds for qualified disability expenses to support the beneficiary's health, independence, and quality of life.

Where can I Find More Information on ABLE Accounts?

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.

The Role of ABLE Accounts in Financial Planning

ABLE accounts are more than just a savings tool; they are a crucial component of a comprehensive financial plan for individuals with disabilities and their families. They offer a way to save and invest without losing eligibility for vital public benefits, provide tax advantages, and allow for flexibility and control in managing expenses related to living with a disability.

Incorporating an ABLE account into your financial plan can significantly impact your financial security and independence. It enables saving for the future while ensuring that current benefits remain intact. As part of a broader financial strategy, ABLE accounts complement other planning tools like special needs trusts, offering a balanced approach to managing both short-term and long-term financial needs.

We encourage readers to view ABLE accounts as a valuable opportunity to enhance financial well-being. By understanding and utilizing these accounts, individuals with disabilities and their families can achieve greater financial stability and peace of mind.