An ABLE (Achieving a Better Life Experience) account is a tax savings account available to persons diagnosed with significant disabilities before age 26. Established under the ABLE Act 2014, funds from these accounts can help individuals with disabilities and their families meet their considerable cost of living.
Eligibility and Requirements
ABLE accounts are tax-advantaged accounts available to those with a disability under 26. If you meet these requirements and receive SSDI or SSI benefits, you'll automatically be eligible for ABLE accounts.
However, you can still be eligible for an ABLE account even if you aren't eligible for SSDI or SSI benefits. You can:
- Meet Social Security's criteria and definition covering functional limitations, and
- Receive a letter of disability certificate from a doctor of medicine or osteopathy, a licensed physician, a doctor of dental medicine or dental surgery, and in some cases, a chiropractor, a doctor of optometry, or a doctor of podiatric medicine.
- A licensed psychologist, clinical therapist, or certified vocational rehabilitation counselor cannot sign your letter of disability.
- As long as your onset of disability began before your 26th birthday, you'll still be eligible to open an account.
Effective 01/01/2026, The ABLE Age Adjustment Act will increase the age requirement from "before age 26" to "before age 46."
Like 529 education accounts, ABLE accounts are managed state-by-state and not by the U.S. Federal government. Friends, family members, or the beneficiary can contribute to an ABLE account.
The total annual contribution limit cannot exceed a specific limit set by the gift tax exemption 2018. In 2023, the yearly limit is $17,000.
Contributions made in an ABLE account are not subject to tax deductions; however, some states may allow deductions under their income taxes. The funds in the accounts grow tax-free.
Benefits and Features
An ABLE account functions similarly to a 529 plan account. The money kept in an ABLE account can grow tax-free and be invested if it is used for qualified disability expenses.
Qualified disability expenses mean all expenses incurred by the designated beneficiary because of living a life with a disability. Expenses may include:
- Food
- Housing
- Transportation
- Education
- Healthcare expenses
- Financial management and administrative service
- Employment training and support
- Assistive technology
- Personal support services
- Other expenses that help improve health, independence, and quality of life
You can open an ABLE account regardless of where you live and whether your state has established an ABLE program. You can enroll in any state program, provided they accept out-of-state residents.
Like 529 college savings plans, states offer qualified people and their families the option to open ABLE accounts with various investment and savings opportunities.
ABLE account owners can assess their future monetary needs and costs and consider their risk tolerance abilities for developing future investment strategies. They can change how they invest their money up to twice yearly.
Considerations
As of January 2024, qualified people can choose between 49 ABLE plans nationwide, regardless of residence. You may select an ABLE plan after considering the following factors:
- Opening an ABLE Account: Before opening an ABLE account, determine if you'll need any documents or fees to open it and whether you must contribute a specific minimum amount to maintain the account.
- Account Maintenance: Determine if you'll get reduced fees by letting the money sit invested in the account for several years. In addition, consider if there are any restrictions on the number of times you can withdraw from the account.
- Investment Opportunities: Consider if the ABLE account offers any unique or value-added program to save, grow, and manage your invested dollars.
- Unique to Your State: Consider whether your state has a program and offers a state income tax for its account contributions. Also, consider whether they provide a debit or purchase card with the program.
Takeaway
An ABLE account provides qualified beneficiaries and their families with many financial choices and control. Opening the account can allow the beneficiary to use the funds to meet their regular expenses. It also helps them save and invest the unused funds for future financial security.