Financial Planning

ABLE Accounts Give Disabled More Financial Freedom

People with disabilities, and their families, can save for a variety of expenses in these tax-advantaged accounts.

In 2014, federal legislation paved the way for states to offer ABLE accounts—tax-advantaged plans that allow individuals with disabilities to save for ongoing expenses without threatening their eligibility for crucial government support, such as Supplemental Security Income or Social Security Disability Insurance. Previously, people with disabilities had to have less than $2,000 in total assets to maintain their eligibility for such programs, which made it difficult for them to live independently. 

As is the case with 529 college-savings accounts, ABLE accounts (the acronym stands for Achieving a Better Life Experience) grow tax-free, and the earnings aren’t taxed as long as the money goes toward qualified disability expenses. The maximum annual contribution to an ABLE account rose to $16,000 on January 1. The limit, which is tied to the IRS’s gift tax exclusion, had been capped at $15,000 since 2018. 

All but four states—Idaho, North Dakota, South Dakota and Wisconsin—offer ABLE programs, and if you live in a state that doesn’t offer one, you can create an account offered by another state. 

How to Qualify

Anyone with a disability who receives disability-related benefits, such as SSI or SSDI, or who can produce a certification from a doctor that states that their disability is “marked and severe,” can open an ABLE account, with one major caveat: The individual’s disability must have occurred prior to his or her 26th birthday. Congress is considering legislation that would extend the age of onset from 26 to 46. If enacted, the legislation would likely double the number of people who qualify for an ABLE account, says Mary Morris, chief executive of ABLEnow, an ABLE program offered by Virginia. “It would hit a really large group of working people with disabilities and those who we think benefit most from an ABLE account,” Morris says. 

Contributions to an ABLE account can come from anyone—friends, family, even strangers—as long as they don’t total more than $16,000 in one year. And many states allow residents a state tax deduction for a portion of their contributions to their own state’s plan, Morris says. Michigan, for example, allows residents who contribute to its ABLE account to deduct up to $5,000 (or $10,000 for a married couple). Minimum contributions to ABLE accounts vary from state to state, but generally they’re low, ranging from $5 to $50. 

If you have unused funds in a 529 college-savings account, you can roll over that money to an ABLE account. If you go this route, you can still use the money for college, but you can also use it for qualified ABLE account expenses.

The list of qualified expenses is broad and includes basic living expenses, health and wellness programs, housing, transportation and vehicle expenses, education and training, assistive technology, and even financial management.

People are now saving for homes and small business start-up costs—as well as disability-related expenses, such as an electric-powered wheelchair or scooter—“anything that someone wants to, as the name suggests, achieve a better life experience,” says Tom Foley, a financial planner and executive director of the National Disability Institute. Individuals can also use these accounts to build up an emergency savings fund.

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