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Unlocking Financial Independence: Everything You Need To Know About The Achieving A Better Life Experience (ABLE) Program
Key Takeaways
Many individuals with disabilities often face not just physical and emotional challenges, but financial hurdles that can feel overwhelming and impossible to overcome. The constant juggling of health needs, daily expenses, and the rigorous requirements of various public assistance programs can leave one feeling trapped in a cycle of dependency and helplessness. It’s a tough reality that being disabled often comes with higher costs of living—costs that aren't always covered by government aid. This financial strain can make independence seem like a distant dream for many.
However, there's a beacon of hope in the form of ABLE accounts. These tax-advantaged savings accounts are designed to provide individuals with disabilities the opportunity to save for their future without losing eligibility for essential public benefits, thereby offering a path towards financial independence and empowerment.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or legal advice. Financial situations can vary widely based on individual circumstances, and the specifics of ABLE programs for disabled individuals may have unique considerations. We recommend consulting with a qualified financial advisor to ensure you are making the best decisions based on your personal needs and goals.
What is an ABLE Account?
The Achieving a Better Life Experience (ABLE) program is designed to empower Americans living with disabilities to build financial independence by saving money in a tax-advantaged account. Signed into law in 2014, the program addresses the financial challenges that can accompany disabilities by allowing the creation of ABLE accounts.
Money saved in an ABLE account can be used for a wide range of qualified disability-related expenses. These expenses are meant to help the account beneficiary maintain or improve their health, independence, and quality of life. Here's a list of some of the most common categories and examples of qualified expenses:
Education: Tuition for preschool through post-secondary education, books, supplies, and educational materials related to such education, and tutoring services.
Housing: Expenses related to obtaining and maintaining housing, including rent, mortgage payments, home improvements, and utility charges.
Transportation: Expenses for transportation, including the use of mass transit, the purchase or modification of vehicles, and moving expenses.
Employment Training and Support: Job-related training and support, including assistance with finding and maintaining employment, job-related tools, and supplies.
Assistive Technology and Related Services: Purchase or lease of equipment, devices, or software that assist in communication, mobility, or other daily functions.
Personal Support Services: Expenses related to personal assistants, home health aides, and similar services.
Health Care Expenses: Premiums for health insurance, mental health, medical, vision, and dental expenses; habilitation and rehabilitation services; durable medical equipment; therapy; and services related to the management, diagnosis, and treatment of physical and mental conditions.
Financial Management and Administrative Services: Financial, legal, and administrative services, including fees for financial advisors, accountants, and legal services.
Expenses for Oversight and Monitoring: Costs associated with oversight and monitoring services necessary to maintain the beneficiary's independence and health.
Funeral and Burial Expenses: Expenses for funeral and burial.
Basic Living Expenses: Other basic living expenses not explicitly mentioned but related to the maintenance or improvement of the beneficiary’s health, independence, or quality of life.
The flexibility of ABLE accounts ensures that individuals with disabilities have access to funds that can be used to significantly improve their living conditions and overall well being while preserving their eligibility for vital public benefits.
Key Tax Benefits of ABLE Accounts:
- Tax-Free Growth: Contributions themselves might not be tax-deductible (depending on your state), but all investment earnings within the account grow tax-free. This means interest, dividends, and capital gains accumulate without being reduced by taxes.
- Tax-Free Withdrawals: The most significant benefit is tax-free withdrawals for qualified disability expenses. As long as the money is used for these approved purposes, you won't pay any taxes on withdrawals. Examples of qualified expenses include education, housing, transportation, and assistive technology
- Saver's Credit: The designated beneficiary of the ABLE account may be eligible for the federal Saver's Credit, a tax credit for low- and moderate-income earners who save for retirement or disability.
- State Tax Benefits: Some states offer additional tax benefits for ABLE account contributions, such as tax deductions or credits. It's worth checking with your state's ABLE program to see if they have any specific tax incentives.
Contribution Limits:
- The total annual contribution limit for an ABLE account is $17,000 from all sources. This limit is tied to the federal annual gift tax exclusion.
- Account holders who are employed can contribute additional funds beyond the standard annual limit. The extra amount is limited to the lesser of the individual’s compensation for the year or the federal poverty level for a one-person household.
- Some states set a maximum limit on how much can be contributed to an ABLE account over its lifetime. This limit often aligns with the state’s limit for education-related 529 savings plans.
- Most importantly, contributions to an ABLE account do not count toward the $2,000 asset limit for Supplemental Security Income (SSI) until the ABLE account exceeds $100,000.
- If the account exceeds $100,000, SSI payments may be suspended until the balance is reduced. Medicaid eligibility remains unaffected regardless of the ABLE account balance.
As of December 2023, there were over 162,000+ active ABLE accounts with a combined asset total of over $1.7 million. However, it is estimated that over 14 million Americans are eligible for ABLE accounts, which means there is a large gap in awareness and utilization of this valuable resource.
Am I Eligible for an ABLE Account?
To qualify for an ABLE account, your disability must have started before you turned 26. If you meet this age requirement and are already receiving benefits under SSI and/or SSDI, then you are automatically eligible to create an ABLE account.
If you are not a recipient of SSI and/or SSDI but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account. However, there are additional requirements and documentation that must be provided before you can open your account.
It is important to note that if you are currently over the age of 26 but you become disabled before 26, then you could still be eligible to open an ABLE Account.
What If I Became Disabled After 26?
The ABLE Age Adjustment Act was passed as part of the Omnibus Spending bill in 2022. This bill will increase the age of ABLE eligibility from "before age 26" to "before age 46" effective 1/1/2026. It is estimated that this change will help an estimated 6 million people be eligible for ABLE, including 1 million veterans.
How to Open an ABLE Account
Opening an ABLE account is a significant step towards financial independence for individuals with disabilities. Here’s a straightforward guide to help you start:
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- Confirm Eligibility: Verify that you meet your state’s eligibility requirements first. If you are already receiving SSI or SSDI, you may qualify automatically to open an ABLE account.
- Find Your State’s ABLE Program: Most U.S. states offer ABLE accounts to residents and each state may have different eligibility requirements or processes to open the account. To find your state’s program, click here to visit the ABLE National Resource Center page.
- Some states may allow enrollment from out-of-state residents. If you are unsure of which state program would be best for your needs, you can use the ABLE National Resource Center comparison tool to see what each state offers.
- Gather Required Information: You may need to provide further documentation to confirm your disability and identity before you can open an ABLE account.
- Register Online: Once you have the necessary documents, submit them online through your state’s ABLE program.
- Choose Your Investments: Once your account is open, you can manage your account and set up automatic payments to start saving.
Why The Need For ABLE Accounts?
Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care and food and housing assistance. Eligibility for these public benefits (SSI, SNAP, Medicaid) require meeting a means/resource test that restricts eligibility to individuals with less than $2,000 in liquid resources, such as cash savings, non-ABLE checking and savings accounts and some retirement funds. To remain eligible for these public benefits, an individual must remain poor.
For the first time in public policy, the ABLE Act recognizes the additional and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working-age adult with disabilities, accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare. For the first time, eligible individuals and their families will be allowed to establish ABLE savings accounts that will largely not affect their eligibility for SSI, Medicaid and means-tested programs such as FAFSA, HUD and SNAP/food stamp benefits.
Frequently Asked Questions
The ABLE Act itself is a federal law that enables states to create ABLE programs, but it doesn't mandate them. Each state has the option to establish their own program or not.
As of December 2023, there are 49 states that offer ABLE programs, including the District of Columbia. To learn more about your state's program, click on the links below:
Don't see your state listed? You can click here to view a map of all the ABLE programs available in the United States.
A person is only allowed to have one ABLE account at a time.
In the event the ABLE account holder passes away, the funds in the account can be used to pay for qualified disability expenses, funeral and burial costs. After the expiration of the state Medicaid statute of limitations or payback, any remaining ABLE funds are then distributed to the named beneficiary.
Yes, there are some account service fees that are meant to cover the administrative costs necessary to develop the ABLE program. Each state determines what the account fee will be for opening an account, yearly fees and fees for checks and debit cards. Some states may waive fees if the account holder keeps a certain amount of money in the account. For example, in Alabama, the annual fee to have an ABLE account is $35 per year or $8.75 per quarter.
No, you don’t need to visit your local bank. Once you choose the ABLE program you feel is right for you, visit the program’s website to open an account online.
The minimum amount can vary by state, with some states requiring an initial deposit of $25-$50 and other states not requiring any amount. It is important to read the information for the ABLE program you are interested in to determine if you need to make an initial deposit to open your account.
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