Achieving a Better Life Experience (ABLE) accounts give families of qualified individuals with disabilities the opportunity to fund a variety of qualified disability expenses without jeopardizing the individual’s eligibility for certain means- or resource-tested benefits that are critical to their health and well-being, such as Medicaid and Supplemental Security Income.
ABLE account contributions
Total contributions to an ABLE account for any given year cannot exceed the annual gift exclusion amount, which is $16,000 for 2022. Contributions from third parties to an ABLE account, qualified rollovers from other ABLE accounts, withdrawals for qualified disability expenses, and assets in an ABLE account are generally disregarded for the purposes of means-tested federal benefits. (However, for the purposes of determining eligibility for Supplemental Security Income payments, ABLE account balances over $100,000 and some qualified distributions from ABLE accounts for housing expenses that are not spent within the same month are included as resources for means-testing limits.)
Savings from a 529 college savings account up to the annual contribution limit may be rolled into an ABLE account until January 1, 2026, if the 529 college account is for the same beneficiary or for a member of the same family as the ABLE account holder.
ABLE account earnings and withdrawals
Earnings in an ABLE account are tax-deferred, and withdrawals are tax-free when used to pay for qualified disability-related expenses, which may include housing, food, transportation, employment training, assistive technology and personal support, education, or other expenses that help improve the beneficiary’s health, independence, and/or quality of life.
ABLE account programs
The District of Columbia and 46 states currently provide ABLE account programs. Idaho, North Dakota, South Dakota, and Wisconsin do not, but those states allow eligible residents to establish out-of-state ABLE accounts. Most states allow out-of-state beneficiaries to open ABLE accounts in their programs.
States have different options for savings and investments, limits on allowable balances, and different levels of fees for using an ABLE account, so comparing state programs will determine which account is best for you. While some states note explicitly that ABLE account assets and income do not affect eligibility for state benefits, you should seek more information from the state about any potential impact. Upon the death of the beneficiary, a state may make a claim against remaining funds in the account for Medicaid benefits received by the beneficiary.
One ABLE account only
Regardless of which state the beneficiary lives in or in which state the beneficiary opens an ABLE account, a beneficiary is allowed only one ABLE account at any given time.
Eligibility for an ABLE account
Only people whose disabilities emerged before turning age 26 are eligible for an ABLE account. SSI and SSDI recipients whose age of disability onset qualify are automatically eligible. Other individuals could qualify if a licensed physician (or certain other licensed medical providers) signs a disability certification attesting that (1) their physical or mental condition meets the Social Security Administration’s disability eligibility and (2) the onset of the condition was before they turned age 26.
Additional information about ABLE accounts
More information about ABLE accounts and state ABLE programs is available on the ABLE National Resource Center, IRS, Journal of Financial Service Professionals, and Saving for College websites.
Contact your estate plan attorney to determine whether an ABLE account may be the right choice for your family.