ABLE Accounts: What Are They?

This blog post was written by Student Advisory Council member, Meadow Hall.

Living with disabilities can result in extra expenses, like specialty medical care, transportation, and mental health services, some of which can be unexpected. Thankfully, you can better prepare for these expenses by having an ABLE account. In December of 2014, the Achieving a Better Life Experience Act (ABLE) was passed into law. Its primary purpose is to alleviate financial stressors for individuals with disabilities. The act does this by allowing these individuals to have tax-free savings accounts that can be used to cover their disability-related expenses.

How do ABLE accounts work?

Funds within an ABLE account grow tax-deferred, and withdrawals from the account are tax-free on the contingency that the withdrawn funds are used for qualified disability expenses. Qualified disability expenses are defined by the ABLE account, and include, but are not limited to, health care expenses, transportation, housing, educational expenses, and employment training expenses.

Who is eligible for an ABLE account?

You are eligible for an ABLE account if you had a disability onset prior to turning 26 years of age. If you are also already receiving SSI or SSDI benefits, then you are automatically eligible for an ABLE account. However, if you do not have a SSI and/or SSDI but you still meet Social Security’s requirements for functional limitations and have received a letter of disability certification from your doctor, you are still qualified to open an ABLE account. It is important to note that you do not have to be under 26 to open your account; your disability just had to begin prior to you turning 26.

How much money can be added to an ABLE account?

The total contributions in a given tax year must not exceed $15,000. Anyone can make contributions to the account including family members, partners, and friends. However, an individual may only have one ABLE account. There are total savings limits for the entire life of the account, but those vary across states. The range is roughly $235,000 to $529,000 depending on the state; however, with contributions per year not being able to exceed $15,000, this would be a concern that wouldn’t need to be addressed until 15 years after the opening of the account.

Another concern is that if you receive SSI benefits, you know that there is a $2,000 individual resource limit, but know that the first $100,000 of the ABLE account is exempt from this rule. Essentially, it is important to know how your state rules as well as benefits from other programs can affect your ABLE account.

Which ABLE account is best for you?

There are a total of 44 types of ABLE accounts as of January 2021. These accounts vary according to the state they are in, fees, minimum contributions, investment options, restriction on frequency of withdrawals, match or rewards programs, etc. This can be very overwhelming when deciding whether or not to open an ABLE account. Fortunately, you can use the Compare States Tool by the ABLE National Resource Center to see which states best fit your ABLE account needs.