ABLE Accounts Can Help People With Disabilities Save Tax-Free

ABLE accounts do have a major drawback—as noted above, you must have incurred the disability before age 26. But for many people with disabilities, these plans offer much-needed financial flexibility. To figure out whether an account is right for your needs, here are answers to five key questions.

Do You Qualify?
You must have had the disability before turning 26. (The diagnosis can happen after that age.) Legislation has been introduced in Congress that would raise the qualifying age to 46. But so far it has not gained enough support to move forward.

If you had an early diagnosis and you’re already receiving SSI or Social Security Disability Insurance (SSDI), you automatically qualify. If you aren’t receiving those benefits but your disability fits Social Security’s criteria, most plans let you “self-certify” by providing a doctor’s note and date of disability onset.

“You may not have to provide documentation when you open the account, but you may be asked to do so later, so make sure you have a signed disability certification ready,” Kennedy says. You can find a sample disability certification letter here (PDF).

How Do You Sign Up?
You don’t have to live in a state with an ABLE program to open an account. Just as with 529 college savings plans, you can sign up online with any state plan that is available nationwide—there are now more than 40, and only a few are limited to state residents. Parents, guardians, or those with power of attorney, among others, can open an account on behalf of a minor or someone who needs assistance.

You can find information about individual state plans at the ABLE National Resource Center. Unlike 529 plans, however, only one ABLE account can be opened per eligible individual.

How Much Can You Save?
The maximum amount from all contributors is $16,000 per year, which matches the annual amount you can give an individual without incurring a gift tax. That amount will rise with inflation in future years.

The total ABLE account balance can grow to $100,000 without triggering SSI benefit losses, but that amount will not be adjusted for inflation. If that cap is exceeded by more than the $2,000 SSI resource limit, the individual’s SSI payments will be suspended until the account falls below that limit. This will not necessarily affect Medicaid medical benefits because higher limits exist. For those who are not receiving SSI benefits, you can save up to the 529 plan balance limit for that state, which is usually $350,000 or more.

The rules do allow an employed account owner to contribute all of his or her work income, up to $12,880 per year in 2022 ($14,820 in Hawaii, $16,090 in Alaska), in addition to the $16,000 contribution limit, if they or their employer do not contribute to a retirement account in that year.

ABLE account owners who are 18 or older, not a full-time student or claimed as a dependent, and contributing to their plan may qualify for the Saver’s Credit. The amount will be based on your income and how much you put away. For details, see these IRS rules.

For ABLE account beneficiaries who also have a 529 college savings plan in their name, you can roll over funds from the 529 into your account. But the amount you can roll over is capped at $16,000 per tax year. (That assumes no other contributions have been made during that period.)

If the beneficiary received Medicaid since opening an ABLE account, some or all of those savings can be claimed as repayment by the state after death.

Which Expenses Are Allowed?
You can use ABLE account money for a wide range of qualified expenses, as long they enhance the person’s health, well-being, and independence. That can include the costs of basic living expenses, as well as transportation, education, career training, and assistive technology. 

As with 529 college savings accounts, you should keep receipts and spending records, in the event the IRS asks questions about how that money is used, says Matthew Ricks, a certified financial planner in Syossett, N.Y., who focuses on planning for people with disabilities.

How Do You Choose an Account?
First, find out whether your state plan offers tax breaks on contributions to ABLE accounts. For 2022, the Ohio STABLE Account offers residents a state income tax deduction of up to $4,000 per STABLE account you contribute to. Nebraska offers up to a $10,000 break ($5,000 if married, filing separately). If that’s the case, you may do best to stay in-state; otherwise feel free to shop around.

Be sure to look at the costs. Most plans charge annual fees, typically $35 to $45 per year. The investment expenses vary but are generally low. California’s CalABLE Plan charges 0.44 percent to 0.52 percent (fees on the savings account are currently waived). And for Ohio residents, as well as residents of its STABLE Account partner states (Arizona, Missouri, and South Carolina, among others), fees range from 0.19 percent to 0.33 percent.

Consider, too, how easy it will be for the beneficiary to withdraw money and manage the account.

“If you want to use a debit card for spending, you will want to opt for a checking account plan,” Ricks says.

And in some cases, a family member may want to manage or monitor the account on behalf of the beneficiary, so check the plan’s rules for becoming a designated representative.