What Families Need to Know About ABLE Accounts

It wasn’t that long ago that people with disabilities couldn’t have more than $2,000 in personal savings without jeopardizing valuable government benefits.

The creation of Achieving a Better Life Experience (ABLE) accounts in 2014 changed that restriction and, in recent years, ABLE accounts have been enhanced, making them even more attractive to savers. People with disabilities can now save tens of thousands of dollars that they can put toward education, housing, and many other expenses while still receiving federal benefits, such as Medicaid.

How ABLE Accounts Work

ABLE accounts, similar to 529 college savings plans, are sponsored by states. Currently, more than 40 states and the District of Columbia offer them, and many states and D.C. open their ABLE plans to non-residents. While there are no federal tax deductions for contributions, some states may offer a tax break to residents.

An individual can have only one ABLE account. It can be opened at any age as long as the person’s disability began before age 26. Contributions to an ABLE account can be made by the account owner, friends, family members, trusts, and estates. Money in the account can be invested and withdrawn tax-free for eligible expenses benefitting the disabled person. However, If ABLE money is used for non-qualified expenses, the earnings will be subject to income tax and a 10% penalty.

Eligible expenses include:

• Education
• Housing
• Employment training
• Legal fees
• Transportation
• Health care
• Food and other basic living expenses

How Savings Limits Have Changed

Combined contributions to an ABLE account for 2022 can’t exceed $16,000, but updated changes to the law allow an additional savings opportunity for account owners who work and are not contributing to a workplace retirement plan, such as a 457. These workers may contribute up to an extra $12,880 in their ABLE accounts for 2022. (This limit is $16,090 in Alaska and $14,820 in Hawaii.) Plus, by contributing earnings to an ABLE account, they may be eligible for the Saver’s Credit that lowers their tax bill.

Depending on the state, the maximum amount you can hold in an ABLE account ranges from $235,000 to $529,000, according to ABLE National Resource Center. The balance has no impact on Medicaid eligibility. However, once an account exceeds $100,000, it could lead to a temporary suspension of Supplemental Security Income (SSI), until the balance falls below that threshold. (To qualify for SSI, you can’t have more than $2,000 in personal savings, although SSI doesn’t count the first $100,000 in an ABLE account.)

To learn more about ABLE account rules and benefits, visit the ABLE National Resource Center.