Able account

What Is an ABLE Account?

An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings and investment account designed to help individuals with disabilities cover qualified disability-related expenses without jeopardizing their eligibility for certain government benefits. As a specialized vehicle within personal financial planning, ABLE accounts aim to foster greater financial independence for beneficiaries. Funds contributed to an ABLE account can grow with tax exemptions on earnings, provided distributions are used for eligible expenses. This unique account type addresses a critical need by allowing people with disabilities to save more than traditional asset limits typically imposed by means-tested federal programs like Supplemental Security Income (SSI) and Medicaid.

History and Origin

The concept of ABLE accounts originated from the recognition that individuals with disabilities faced significant barriers to saving money without losing essential government benefits. Prior to the ABLE Act, accumulating assets beyond a very low threshold could result in disqualification from programs vital for healthcare, housing, and daily living. Advocates championed legislation to create a savings vehicle that would allow individuals with disabilities and their families to save for disability-related expenses.

This effort culminated in the passage of the Achieving a Better Life Experience (ABLE) Act of 2014, signed into law on December 19, 2014, as H.R.647.⁴¹, ⁴² The law amended Section 529 of the Internal Revenue Code of 1986 to establish these tax-free savings accounts.⁴⁰ The bipartisan support for the ABLE Act underscored a national commitment to enhancing the quality of life and financial security for people with disabilities, enabling them to accrue savings for a wide array of needs.³⁹

Key Takeaways

• ABLE accounts are tax-advantaged savings and investment accounts for eligible individuals with disabilities.
• They allow beneficiaries to save for qualified disability expenses without losing eligibility for many federal means-tested benefits.
• Contributions are made with after-tax dollars, but earnings and distributions for qualified expenses are tax-free.
• Eligibility typically requires the onset of disability to have occurred before a specified age (currently age 26, increasing to 46 in 2026).
• Each eligible individual can have only one ABLE account, which can be managed by the beneficiary or an authorized individual.

Interpreting the ABLE Account

An ABLE account serves as a vital tool for wealth accumulation and resource management within the disability community. Its primary interpretation revolves around its ability to bypass certain governmental resource limits that often prevent individuals with disabilities from building financial security. Unlike traditional savings, funds in an ABLE account (up to a certain threshold) do not count against the asset limits for programs like SSI, allowing beneficiaries to save more without impacting their disability benefits. The tax-free growth and distributions for qualified expenses further amplify its utility, effectively providing a powerful savings mechanism.

Hypothetical Example

Consider Maria, a 30-year-old individual who became disabled due to an accident at age 22. She receives Supplemental Security Income (SSI) and Medicaid benefits, which have strict asset limits. Her family wants to help her save for future needs, such as a specialized van for transportation and assistive technology. Without an ABLE account, any significant savings would jeopardize her eligibility for these crucial benefits.

Maria's parents decide to open an ABLE account for her. Each year, they contribute funds, and Maria also contributes a portion of her earned income. Over several years, the account accumulates, and the investment growth within the account is tax-free. When Maria needs to purchase the specialized van, she withdraws funds from her ABLE account. Because transportation is a qualified disability expense, the withdrawal is tax-free, and the funds in her ABLE account do not count against her SSI asset limit, allowing her to maintain her essential benefits.

Practical Applications

ABLE accounts have diverse practical applications across financial planning for individuals with disabilities. They are primarily used to save for a wide array of qualified disability expenses, which include education, housing, transportation, employment training and support, assistive technology, personal support services, healthcare, prevention and wellness, financial management, and funeral and burial expenses.³⁷, ³⁸

These accounts are instrumental in enabling individuals to maintain eligibility for federal means-tested programs like SSI and Medicaid while accumulating significant savings. As of December 2023, there were over 162,969 active ABLE account holders with more than $1.7 billion in total assets, demonstrating their growing adoption as a key component of long-term care and financial security for people with disabilities.³⁶ Many ABLE programs offer various investment options, similar to 529 college savings plans, allowing for potential portfolio diversification and growth over time.³⁴, ³⁵ Individuals who are employed may also be able to contribute additional funds from their earnings to their ABLE account, further boosting their retirement savings capacity without impacting benefit eligibility.³², ³³ The Internal Revenue Service (IRS) provides extensive guidance on ABLE accounts, including information on qualified disability expenses and contribution limits.³¹

Limitations and Criticisms

Despite their advantages, ABLE accounts have certain limitations and have faced some criticisms. One significant limitation is the eligibility requirement: generally, the individual must have had the onset of their disability before a specific age (currently age 26, though this will increase to age 46 in 2026).²⁹, ³⁰ This age restriction excludes many individuals who acquire disabilities later in life.

Another limitation concerns the annual contribution limits, which are tied to the federal gift tax exclusion amount (e.g., $19,000 for 2025).²⁸ While employed beneficiaries may contribute an additional amount from their earnings, the overall contribution cap can still be a constraint for those with substantial savings potential or those receiving large inheritances or legal settlements.²⁶, ²⁷ Furthermore, there is a cumulative balance limit, which varies by state but can be substantial (e.g., $529,000 in California's program), beyond which no further contributions can be made.²⁵

Perhaps the most critical aspect for beneficiaries of means-tested programs is the SSI asset limit. While an ABLE account balance up to $100,000 is disregarded for SSI eligibility, if the account balance exceeds this threshold, the individual's SSI cash benefits are suspended until the balance falls below the limit again.²³, ²⁴ However, Medicaid eligibility typically remains unaffected, regardless of the ABLE account balance.²² Upon the death of the beneficiary, any remaining funds in the ABLE account, after payment of outstanding qualified disability expenses, may be subject to a "Medicaid payback" provision, where states can file a claim for Medicaid expenses paid since the account was opened.²⁰, ²¹

Some advocates also point to low utilization rates among eligible individuals. As of December 2021, only about 1% of eligible SSI recipients had an ABLE account, suggesting potential barriers such as lack of awareness, complexity, or concerns about managing the account alongside other benefits.¹⁹ While the Social Security Administration (SSA) provides detailed guidance on how ABLE accounts interact with benefit programs through its Program Operations Manual System (POMS), navigating these rules can still be challenging for individuals and families.¹⁸

ABLE Account vs. Special Needs Trust

ABLE accounts and Special Needs Trusts (SNTs) are both financial tools designed to help individuals with disabilities maintain eligibility for government benefits while holding assets. However, they differ significantly in their structure, flexibility, and administrative complexity.

An ABLE account is a simpler, more accessible savings vehicle. It is generally owned by the disabled individual themselves, offering them direct control over the funds (or control by an authorized person if the beneficiary lacks capacity). The setup costs are typically low, and they operate much like a regular savings or investment account, often with online access. Annual contributions are capped at the gift tax exclusion amount, with an additional "ABLE to Work" contribution for employed beneficiaries.¹⁷ There is also a cumulative lifetime limit on contributions, which varies by state.¹⁶

In contrast, an SNT is a more complex legal instrument established by a legal document (often a will or trust agreement) and managed by a trustee. SNTs generally have no limits on the amount of assets they can hold, making them suitable for larger inheritances, legal settlements, or substantial gifts. While SNTs offer greater flexibility in terms of investment options and distribution rules, they are more expensive to establish and administer, requiring legal fees and ongoing trustee management. The beneficiary typically does not have direct control over the funds in an SNT. The choice between an ABLE account and an SNT often depends on the amount of assets involved, the desired level of control, and the complexity a family is willing to manage. For many, an ABLE account serves as an excellent starting point, or even a complementary tool to an SNT, to manage immediate and ongoing qualified disability expenses.¹⁵

FAQs

Q: Who is eligible for an ABLE account?

A: To be eligible, an individual must be diagnosed with a significant disability that occurred before their 26th birthday.¹⁴ Starting January 1, 2026, this age limit will increase to 46.¹³ They must also meet the Social Security Administration's definition of disability, often by receiving SSI or Social Security Disability Insurance (SSDI) benefits, or by obtaining a disability certification from a physician.¹¹, ¹²

Q: What can ABLE account funds be used for?

A: Funds from an ABLE account can be used for a wide range of "qualified disability expenses," which are any expenses incurred as a result of living with a disability. This includes, but is not limited to, expenses for education, housing, transportation, employment training and support, assistive technology, personal support services, healthcare, prevention and wellness, financial management, and funeral and burial costs.⁹, ¹⁰

Q: Are contributions to an ABLE account tax-deductible?

A: Contributions to an ABLE account are made with after-tax dollars and are not deductible for federal income tax purposes.⁸ However, the earnings within the account grow tax-free, and qualified distributions are also tax-free to the beneficiary.⁷ Some states may offer state-level tax deductions or credits for contributions.

Q: How does an ABLE account affect other government benefits?

A: For federal means-tested programs like SSI and Medicaid, funds in an ABLE account (up to $100,000 for SSI) are generally disregarded when determining resource limits.⁶ This means the beneficiary can save without losing eligibility for these vital benefits. If the account balance exceeds $100,000, SSI cash benefits may be suspended, but Medicaid eligibility is typically not affected.⁵ Distributions from the account for qualified disability expenses also do not count as income for these programs.⁴

Q: Can I have more than one ABLE account?

A: No, an eligible individual is limited to having only one ABLE account at any given time.³ If a designated beneficiary has an additional account, it generally will not be treated as an ABLE account and will be subject to normal resource counting rules for government benefits. However, funds can be rolled over from one ABLE program to another, or in some cases, from a 529 college savings plan into an ABLE account.¹, ²