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An Introduction to ABLE Accounts Thumbnail

An Introduction to ABLE Accounts

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 crucial government benefits. And, unlike a special needs trust, an ABLE account can be managed and controlled by the beneficiary.

Unfortunately, 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 the special needs family.

How ABLE Accounts Work

The ABLE Act is part of Section 529 of the Internal Revenue Code, the same section that set up the framework for Education Savings Accounts. Similar to the college savings accounts, the ABLE Act allows money to be set aside in an account for a person with special needs. Contributions are not tax deductible, but distributions from the account are tax-free if they are  used to pay for qualifying expenses toward the care and support of the special needs beneficiary. These accounts are administered by individual states and accept contributions in the form of cash only (not bonds, stocks, real estate, or other assets). As of February 2020, 42 states and the District of Columbia had set up ABLE programs. And many programs allow out-of-state beneficiaries to open accounts.

Qualified Disability Expenses

Money in an ABLE account is intended for the care and support of the person with special needs and can pay for qualified disability expenses. These include housing, transportation, assistive technology, health care, employment support, and other costs related to the beneficiary’s disability. Any amount withdrawn for a non-qualifying expense incurs a 10% tax penalty and is subject to taxation on any gains or investment returns.

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. Ohio’s STABLE account provides a deduction of $4,000 on your Ohio taxes with an unlimited carryforward of any excess contributions.

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). Under the ABLE Act, families may establish ABLE accounts that can grow up to $100,000 without affecting the beneficiary’s eligibility for SSI, Medicaid, and other public benefits so long as the funds remain in the account. These accounts are also easy and inexpensive to set up and do not require the services of a lawyer or special needs planner.

Drawbacks to ABLE Accounts

ABLE accounts may not be for everyone. Eligibility is limited to people who developed their disability before age 26, so anyone who becomes disabled later in life does not qualify. Also, unlike 529 plans, total contributions to ABLE accounts are limited in 2020 to $15,000 per year per beneficiary. Individuals or family members can also make this $15,000 yearly contribution by converting a 529 college savings plan. In addition, beneficiaries who work can make ABLE contributions from their income up to the Federal Poverty Level, which is $12,760 for a single individual in the lower 48 states (in 2020), provided they do not participate in their employer’s retirement plan.

Any SSI income is suspended whenever the value of the account exceeds $100,000. 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. Another drawback is that after the death of the beneficiary, states can claim reimbursements from funds remaining in the account for any Medicaid benefits paid during the beneficiary’s lifetime.


Before setting up an ABLE account for your loved one, make sure you understand every aspect of the law that applies to you and consult your special needs planner. And read more about the pros and cons of ABLE accounts, their practical uses, and related tax law changes.



This content is developed from sources believed to be providing accurate information and is provided at least in part by the Academy of Special Needs Planners. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Original content of Practical Financial Planning, Inc. only is copyright © 2020 by Practical Financial Planning, Inc.