Key Takeaways
- ABLE accounts allow people with disabilities to save without losing federal benefits like Medicaid and SSI.
- Starting January 1, 2026, eligibility expands to include disabilities that began before age 46 (previously age 26).
- For 2023, annual contribution limit is $17,000, with working beneficiaries able to add up to $13,590 more.
- Up to $100,000 in your ABLE account won't count against SSI eligibility; Medicaid remains unaffected.
- Investment earnings grow tax-free and withdrawals for qualified disability expenses are tax-free.
- Most ABLE programs are open to residents of any state, allowing you to choose the best program.
Financial planning is tough for people with disabilities and their families. Saving money often meant losing important government benefits. ABLE accounts changed this in 2014. They allow saving without losing benefits. This article explains ABLE accounts and how to use them well.
If you're thinking about opening an ABLE account or already have one, you'll find useful tips here. These ideas will help you build a stronger financial future. The following nine tips will show you how to get the most from your ABLE account.
What Is an ABLE Account?
Congress created ABLE accounts in 2014. These are special savings accounts for people with disabilities. They allow saving money without losing important federal benefits like Medicaid and Supplemental Security Income (SSI). ABLE accounts offer tax advantages and can pay for disability-related expenses. To qualify, a person's disability must have started before age 26. Most ABLE programs are open to eligible individuals from any state.
Why Are ABLE Accounts Important?
ABLE accounts solve a big problem. Before, people with disabilities couldn't save much money. Saving too much could make them lose crucial government benefits. ABLE accounts change this. Now, eligible individuals can save and invest without risking their federal benefits. Using an ABLE account wisely can help you build a stronger financial future.
Tip 1: Understand the Eligibility Criteria
To open an ABLE account you must meet certain eligibility requirements:
Age of Disability Onset
Your disability must have begun before the age of 26. However, starting on January 1, 2026 the ABLE Age Adjustment Act will expand eligibility to include individuals whose disability began before age 46, allowing more people to qualify.
Disability Certification
You are eligible if you receive SSI or Social Security Disability Insurance (SSDI) benefits due to your disability or have a certification from a licensed physician indicating that you have a medically determinable physical or mental impairment that results in "marked and severe" functional limitations which are expected to last at least 12 months or result in death.
Account Ownership
The ABLE account must be opened in the name of the individual with the disability. An authorized legal representative—such as a parent guardian or someone with power of attorney—can open and manage the account on your behalf.
Note: You don't need to submit medical documentation when opening the account, but you should keep copies in your records in case verification is required.
Tip 2: Contribute Regularly to Your ABLE Account
Regular contributions help your savings grow over time. Here's what you need to know:
As the account owner, you can deposit money directly into your ABLE account. Additionally, family members, friends, and even your employer can contribute to your account.
Funds from a special needs trust or a 529 college savings plan can be transferred into your ABLE account subject to annual contribution limits.
For 2023, the annual contribution limit is $17,000 matching the federal gift tax exclusion amount. If you're employed and don't participate in your employer's retirement plan, you may contribute additional earnings of up to $13,590 in 2023 thanks to the ABLE to Work Act provision.
The maximum account balance limit varies by state, typically ranging from $235,000 to $550,000 aligning with each state's 529 college savings plan limit.
Up to $100,000 in your ABLE account is excluded from being counted as a resource for SSI eligibility. If your account balance exceeds $100,000 your SSI cash benefits may be suspended but not terminated while Medicaid eligibility remains unaffected.
Consider setting up automatic deposits to help you contribute consistently. You can also encourage family and friends to contribute for special occasions like birthdays or holidays.
Tip 3: Take Advantage of Tax Benefits
One of the significant advantages of an ABLE account is the tax benefits:
Earnings on investments in your ABLE account grow tax-free, meaning you won't pay federal income tax on the earnings as long as the funds are used for qualified disability expenses.
Withdrawals used for Qualified Disability Expenses (QDEs) are not subject to federal income tax. These are expenses that relate to your disability and help maintain or improve your health, independence, or quality of life.
Contribute to your own ABLE account and meet income requirements. You may be eligible for the Retirement Savings Contributions Credit, also known as the Saver's Credit which can reduce your federal income tax.
Until December 31, 2025 you can roll over funds from a 529 college savings plan to an ABLE account without tax penalties up to the annual contribution limit.
Ensure that your withdrawals are used for QDEs to avoid income taxes and a 10% penalty on the earnings portion of non-qualified withdrawals.
Tip 4: Use the Funds for Qualified Disability Expenses
Using your ABLE account funds for Qualified Disability Expenses ensures you maintain the tax advantages and do not affect your benefits.
Examples of QDEs include:
Education
Tuition books, supplies and educational materials.
Housing
Rent mortgage payments, property taxes, utilities and property insurance.
Transportation
Public transportation vehicle purchase and modification and travel expenses.
Employment Support
Job training, employment counseling and assistive technology.
Health and Wellness
Medical dental and vision care; therapies; mental health services.
Assistive Technology
Devices and services that assist in daily living.
Personal Support Services
Personal care attendants and respite care.
Basic Living Expenses
Food, clothing and other personal needs.
Financial Management
Costs associated with managing your ABLE account.
Important: Keep records of your expenses in case you need to prove they were qualified expenses.
Tip 5: Explore Investment Options
Your ABLE account offers investment opportunities to help your savings grow:
States typically provide a range of investment options from conservative to aggressive portfolios. These may include savings accounts, money market funds, bond funds, stock funds or age-based portfolios.
It's important to align your investment choices with your personal goals. Consider your risk tolerance when selecting investments, choosing options that match your comfort level with risk.
Think about your time horizon. Conservative investments may be appropriate for short-term goals, while more aggressive investments may offer higher growth potential for long-term goals.
You have the flexibility to change your investment options up to two times per year. This allows you to adjust your strategy as needed adapting to changes in your financial situation or goals.
Tip 6: Coordinate with Other Financial Resources
Integrating your ABLE account with other financial tools can enhance your financial planning:
First-party special needs trusts (SNTs) are funded with the beneficiary's own assets and are often used for larger sums like inheritances or legal settlements. Third-party SNTs, on the other hand, are funded by someone else such as a parent or grandparent.
You can complement your ABLE account with SNTs by using the trust for larger assets and the ABLE account for daily expenses and tax advantages.
Funds in an ABLE account are not counted as resources for Supplemental Nutrition Assistance Program (SNAP) eligibility allowing you to save without affecting your food assistance benefits.
To coordinate these resources effectively it's advisable to consult with a financial advisor or attorney experienced in special needs planning. They can help you integrate your ABLE account with other financial tools to enhance your overall financial planning.
Tip 7: Monitor Your Account Regularly
Regular monitoring ensures your ABLE account continues to meet your needs:
- Account Balance: Keep track to avoid exceeding the $100,000 limit that can affect SSI benefits.
- Contributions: Ensure you don't exceed annual contribution limits.
- Investment Performance: Review how your investments are performing and adjust if necessary.
- Fees: Be aware of any fees that may impact your account's growth.
- Program Updates: Stay informed about changes to your state's ABLE program.
Most ABLE programs offer online account management tools or dashboards to help you monitor your account easily.
Tip 8: Stay Informed About State-Specific Programs
ABLE programs can vary by state, so it's important to understand what your state offers:
ABLE programs can vary by state with differences in account maintenance and investment fee types, performance of investment options and state tax benefits. Some states offer tax deductions or credits for contributions.
Most ABLE programs are open to residents of any state but some may have residency restrictions. It's important to check the specific requirements of each program you're considering.
To find the program that best suits your needs, compare different state offerings using resources like the ABLE National Resource Center.
Program features and state regulations can change over time, so it's crucial to check for updates regularly to ensure you're making the most of your ABLE account benefits.
Tip 9: Seek Professional Financial Advice
Professional guidance can help you maximize the benefits of your ABLE account:
Some states offer ABLE plans through financial advisors who can provide personalized advice. These advisors can help with investment choices, tax planning and integrating your ABLE account with other financial strategies.
When choosing an advisor, look for professionals who are experienced in special needs planning. It's important to discuss fees upfront and understand how they are compensated for their services.
Professional advice can ensure compliance with complex regulations surrounding ABLE accounts and government benefits. This expertise helps you make informed decisions tailored to your specific situation.
Working with a financial advisor can help you maximize the benefits of your ABLE account by providing guidance on how to best utilize this financial tool within your overall financial plan.
Conclusion
ABLE accounts help people with disabilities save money without losing government benefits. To get the most from your ABLE account, understand the rules, save regularly, use tax benefits, spend wisely and invest smartly. Also, combine it with other financial tools to keep track of your account, know your state's program and get professional advice when needed.
Rules about ABLE accounts can change. For the latest information, check resources like the IRS Social Security Administration and the ABLE National Resource Center.
Need Help with Financial Planning?
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Loretta Kilday
Loretta Kilday is a financial writer and editor with expertise in personal finance, debt management, and financial planning. She has helped thousands of people understand complex financial topics and make informed decisions about their money.