ABLE Savings Account Benefits for People with Disabilities
Key takeaways:
An Achieving a Better Life Experience (ABLE) account is a tax-advantaged savings account that allows eligible people with disabilities to pay for qualified disability expenses (QDEs).
You can still qualify to receive government assistance benefits, such as Supplemental Security Income (SSI) or Medicaid, when your ABLE account balance is $100,000 or less.
Anyone can contribute to an ABLE account on behalf of a qualified individual. However, you should be mindful of the annual contribution and cumulative savings limits.
An Achieving a Better Life Experience (ABLE) account is a tax-advantaged savings account for certain individuals with disabilities. Passed into law in 2014, the ABLE Act allows states to create savings programs that can help eligible individuals pay for qualified disability expenses (QDE) with tax-free funds.
Many individuals and their families depend on public benefits to help offset the significant cost of disability-related expenses. ABLE accounts provide a way for qualified individuals to save up for those extra expenses while still remaining eligible for other public assistance programs, such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), and Medicaid.
How do ABLE accounts work?
ABLE accounts, also known as 529 A accounts, give individuals with disabilities an opportunity to pay for QDEs like housing and personal support services, with tax-free funds.
The money you contribute to an ABLE account can be invested into assets that best fit your level of risk tolerance and goals. You won’t have to pay federal taxes on the earnings in your ABLE account as long as the funds are used to pay for QDEs.
ABLE accounts have an annual contribution limit (based on the annual gift tax exclusion) and a cumulative savings limit (set by each state’s ABLE program). Contributions to an ABLE account are capped at $17,000 for 2023 (up from $16,000 in 2022) for account holders who do not work. Cumulative limits for states range from $235,000 to $550,000. You can check with the ABLE National Resource Center or your state program to determine your account limits.
You may still qualify to receive government assistance benefits when you have an ABLE account. Typically, you need to have less than $2,000 in resources (funds in checkings accounts, savings accounts, etc.) to remain eligible for SSI and Medicaid programs. But you can have up to $100,000 in your ABLE account and qualify.
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If you receive SSI and your ABLE account exceeds $100,000, your SSI benefits will be suspended until the account drops below that amount. However, this will not affect your eligibility to receive healthcare coverage through Medicaid.
What can you use your ABLE account for?
You can use the money in your ABLE account to pay for QDEs. As long as expenses fall into this category, you won’t have to pay taxes on the money you withdraw to pay for them.
The IRS defines a QDE as an expense:
Incurred at a time when you were considered an eligible individual
That relates to your blindness or disability
That helps maintain or improve your health, independence, or your quality of life
Categories of QDEs include:
Assistive technology
Burial and funeral expenses
Education
Employment training and support
Financial management
Health and wellness
Housing
Legal fees
Oversight and monitoring expenses
Personal support services
Transportation
You will not have to report distributions (withdrawals) for QDEs as income for the current year. If you use your ABLE account funds for non-qualified expenses, the earnings in your account will be taxed.
Who is eligible for an ABLE account?
ABLE accounts are available nationwide, regardless of state residency. To be eligible, you must meet the following requirements:
Have been blind or had a disability since before age 26
Be eligible to receive means-tested benefits such as:
Supplemental Security Income (SSI)
Social Security Disability Insurance (SSDI)
Childhood Disability Benefits (CDB)
Individuals who meet both requirements are automatically eligible for an ABLE account. However, even if you only meet the disability age requirement, you may still be eligible to open an ABLE account But you must do one of the following:
Meet the Social Security Administration’s (SSA) criteria for a mental or physical disability that lasts longer than 12 months or could result in death.
Obtain a letter of disability certification from a licensed doctor of medicine (MD) or doctor of osteopathic medicine (DO).
Meet the SSA’s “compassionate allowance condition” criteria, which means the disability occurred before age 26 and is so severe that it does not require a physician'’s diagnosis.
Older individuals are also eligible for an ABLE account if their disability occurred before they turned 26.
How do you sign up for an ABLE account?
You can apply to open an ABLE account through your state’s program. Or, if your state does not offer an ABLE program, you can enroll in another state’s. You can open an account in any state that accepts out-of-state residents, as long as you meet the eligibility requirements.
Most states require you to open and manage your ABLE account online. But some ABLE programs may offer a paper application that can be mailed or faxed.
Decide what state you want to open an account in.
Visit the state’s ABLE program website.
Complete and submit the application.
You may need to provide the following information when you apply:
Personal identification information, such as your name, address, date of birth, and Social Security number
Disability certification letter from a physician
Information about anyone authorized to access your account
Banking information
Information about your investment risk tolerance
Eligible individuals can only have one ABLE account at a time, and enrollment is typically free. Some accounts may require a minimum contribution to open, and some may charge a monthly service fee for maintenance. But sometimes fees can be waived if an account holder maintains a minimum balance in the account.
You can use the Three-State Comparison Tool to compare ABLE account programs in different states.
What are the pros and cons of ABLE savings accounts?
ABLE accounts can come in handy for individuals who have to pay QDEs. Below are a few pros and cons.
| Pros | Cons |
|---|---|
| Funds do not affect eligibility for government assistance benefits when the account balance remains below $100,000. | Annual contribution limits. |
| Earnings and distributions are not taxed when used for QDEs. | Earnings and distributions are not tax-free when used for non-eligible expenses. |
| Funds in the account can be invested into assets. | Cumulative savings limits, which vary by state. |
How do you take money out of an ABLE account?
You can access your ABLE account funds by:
Electronic fund transfer
Contacting customer service to request a paper check or withdrawal form
Downloading a withdrawal form from your online account
Using a reloadable ABLE prepaid Visa card
You do not need to submit receipts for your QDEs. But you should keep the receipts, along with any other documentation related to your account. If you need to know whether a cost qualifies as a QDE, you can check with the IRS.
ABLE account holders should receive an account statement at the end of the year. This statement will include information about contributions and withdrawals for the tax year. Some state ABLE programs may also send IRS forms 1099-QA or 5498-QA with the same information.
Who can contribute to your ABLE account?
Anyone can contribute funds to your able account. Aside from the designated beneficiary, other categories of contributors to an ABLE account include:
Associations
Companies or corporations
Estate
Family
Friends
Individuals
Partnerships
Trusts
Regardless of who makes contributions, the owner of the ABLE account is the person with the disability. However, ABLE accounts are also transferrable to other qualifying family members.
ABLE account holders who are employed have an additional opportunity to save even more money as a result of the “ABLE to Work'' provision of the Tax Cuts and Jobs Act. As long as you do not participate in any employer-sponsored retirement accounts, you may be eligible to contribute the lesser of the following amounts:
Your gross income for the tax year
Up to the annual poverty line amount based on income and members of your household
Also, as a result of the Tax Cuts and Jobs Act, some account holders who contribute money to their account may qualify to receive a saver’s credit of up to $2,000 when filing taxes.
The bottom line
ABLE accounts help people with disabilities pay for qualified disability expenses (QDEs) using tax-free dollars. Your disability must have occurred before age 26 for you to qualify. If you contribute to an ABLE account, you are still eligible to receive government assistance benefits, as long as your account balance is $100,000 or less.
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References
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