ABLE accounts are special, tax-advantaged savings accounts available to those with disabilities and their families. An ABLE account helps those who receive government assistance through Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Supplemental Nutrition Assistance Program (SNAP), and Medicaid to save money for additional expenses resulting from their disabilities.
Having a disability often comes with additional costs, such as prescription medications, education, housing, and accessibility devices, including wheelchairs and transportation. These expenses are often costly, and many disabled individuals cannot afford them independently.
Sometimes, saving money is the only way to afford these amenities, but unfortunately, individuals who receive government benefits such as SSI cannot save large sums of money without risking their benefits being taken away. Luckily, ABLE accounts can help disabled individuals save and invest their money while avoiding losing their access to disability benefits.
What Is the ABLE Act?
The Achieving a Better Life Experience Act (ABLE), was passed by the U.S. House of Representatives on December 3, 2014. Following this, the U.S. Senate voted to include the ABLE Act in the Tax Extenders package, which was signed into law on December 19, 2014 by then-President Barack Obama.
ABLE vs. SNTs
Another type of account that some disabled individuals qualify for is the Special Needs Trust (SNT). However, these accounts differ from ABLE accounts. For example, an ABLE account has stricter qualifications, such as a qualifying disability age, which is currently set to 26 or younger for ABLE account holders. In contrast, SNTs have no age requirement.
ABLE accounts are also limited to $14,000 a year in contributions, whereas SNT accounts have an unlimited contribution limit. Additionally, ABLE account holders must use their savings to pay for qualified disability expenses. SNT holders, on the other hand, can use their funds to buy anything that benefits them.
How ABLE Accounts Work
ABLE accounts are tax-deferred accounts where disabled individuals can freely save money on qualified disability expenses. Withdrawals from the account are tax-free and can be used over the course of the beneficiary’s lifetime, but they can only be used to pay for qualified expenses.
It is up to each state to enroll individuals in their ABLE accounts and distribute the benefits that come along with them. Since ABLE standards can differ from state to state, you should contact your state to find out about exemptions, investment options, associated fees, and additional details.
ABLE Account Allowed Expenses
Qualified disability expenses (QDE) refer to essential costs or costs that result from a disability, including:
- Education: Tuition, books, and supplies
- Housing: Rent, mortgage payments, property taxes, and utility bills
- Transportation: Public transport, vehicle purchase, vehicle maintenance, and moving expenses
- Employment support: Costs associated with getting and keeping a job and job-related training
- Assistive technology: Wheelchairs, smartphones for autistic children, and more
- Personal support services: Financial management, administrative services, legal fees, home improvement and modifications, home maintenance and repairs, funeral and burial expenses, and more
- Healthcare expenses: Health insurance premiums, costs relating to mental health, vision and dental services, habilitation and rehabilitation services, medical equipment, therapy, nutritional support, and more.
Typically, an ABLE account can be used for any disability-related expense that benefits the beneficiary’s health, independence, and quality of life. The IRS may perform audits on your ABLE account to track how funds are used. While the IRS is responsible for keeping track of these funds, though, you may also want to consider holding onto records of what you use your ABLE account for.
ABLE Account Eligibility
ABLE accounts, like most government assistance programs, require that certain criteria be met before you open an account. To be eligible for an ABLE account, you must have been diagnosed with a qualifying disability before age 26 and have been diagnosed for at least one year. If you’ve had an established disability for this long and currently have SSI or SSDI, though, then you are eligible to open an ABLE account even if you are currently past the age of 26 years old. However, you will need a certified letter from a doctor regarding your disability. You will also have to meet the definition of functional disabilities set by the Social Security Administration.
Account eligibility can be proven online in most cases. While it’s not required to provide records of your diagnosis to open an account, it’s recommended that you have these documents available.
Other Considerations
ABLE accounts have a limit of one account per person. Forty-nine ABLE plans exist nationwide, and, regardless of the state where you live, as long as you’re eligible to open an ABLE account, you can enroll in any state ABLE program of your choosing. Since ABLE programs vary between states, you may prefer to open an ABLE account in a state where you don’t reside.
To determine which program is right for you, consider the following:
- The documentation you’ll need to provide
- Minimum contributions
- Any associated fees
- Restrictions on withdrawals
- Investment options
- Income tax contributions
- Debit card access
- Additional benefits such as rewards programs or financial literacy information