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When Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014, it was a game-changer for families with special needs. For the first time, there was a tax-advantaged way to put money aside for dependents with disabilities without compromising their eligibility for government benefits. And, unlike a special needs trust, an ABLE account can be managed and controlled by the beneficiary.
Since this law was enacted, however, there has been some confusion about how ABLE accounts work, and the public has been slow to sign on. Here are answers to a few basic questions to help clarify what ABLE accounts can and can’t accomplish for your family.
What Is the ABLE Act, and What Does It Mean?
The ABLE Act is a provision of the 529 section of the IRS code, the section that previously established the framework for education savings plans to help families save for college. The ABLE Act allows money to be set aside for a person with special needs in a similar way. This money can grow tax-free over time and is used to pay for qualifying expenses toward the care and support of the special needs beneficiary.
These accounts are administered by the individual states and accept contributions in the form of cash only (not bonds, securities, real estate, or other assets). As of February 2022, 45 states and the District of Columbia had set up ABLE programs, although if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. Check out a directory of state programs.
What Can ABLE Accounts Pay For?
Money in an ABLE account is intended for the care and support of the person with special needs. Qualifying expenses include housing, transportation, assistive technology, health care, and employment support.
Any amount withdrawn for non-qualifying expenses incurs a 10 percent penalty payable to the IRS and is subject to taxation on any gains or investment returns.
What Are the Advantages of ABLE Accounts?
ABLE accounts provide advantages in two areas: taxation and access to government benefits.
Through an ABLE account, a person with special needs can accumulate savings in a tax-advantaged way similar to 529 college savings plans. Like 529 plans, the funds in an ABLE account grow tax-free, and some states even offer account contributors a deduction from state income taxes.
A person with disabilities who has more than $2,000 in assets would normally not qualify for federal government benefits such as Supplemental Security Income (SSI). However, under the ABLE Act, families may establish ABLE accounts that will not affect the child’s eligibility for SSI (up to $100,000), Medicaid, and other public benefits.
Such accounts are also easy and inexpensive to set up and do not require the services of a lawyer or special needs planner.
Are There Any Drawbacks or Limits to ABLE Accounts?
Due to certain restrictions, ABLE accounts may not be for everyone.
- Age Limit — Eligibility used to be limited to people who developed their disability before age 26; anyone who becomes disabled later in life did not qualify. Fortunately, in late 2022, Congress signed off on adjusting this age limitation beginning in 2026. Since January 2026, individuals who became disabled before age 46 (rather than age 26) are eligible to open an ABLE account.
- Cap on Annual Contributions — In addition, unlike 529 plans, total contributions to ABLE accounts are limited to $18,000 per year (in 2024). Beneficiaries who work can make ABLE contributions above the $17,000 annual cap from their own income up to the Federal Poverty Level, which is $14,580 for a single individual in the lower 48 states (in 2024), provided they do not participate in their employer’s retirement plan.
- Set Maximum on Account Balance — If the value of the account exceeds $100,000, any SSI income is suspended until the account dips below that limit. Faced with saving for the lifetime needs of a loved one with disabilities, families realize that $100,000 may not be enough yet are wary of losing that government income even for a short period.
- Reimbursements to the State — Another drawback is that after the death of the ABLE account beneficiary, states can claim reimbursements from funds remaining in the account for any Medicaid benefits paid during the beneficiary’s lifetime.