ABLE Accounts (Achieving a Better Life Experience)

ABLE accounts, created by the Achieving a Better Life Experience Act of 2014, provide a tax-advantaged savings option for individuals with disabilities. These accounts allow people with disabilities to save money without jeopardizing their eligibility for Supplemental Security Income (SSI), Medicaid, and other means-tested benefits. For CFP professionals, ABLE accounts represent a simpler, more accessible alternative to special needs trusts for many disability planning situations.

ABLE Account Basics

What is an ABLE Account?

An ABLE account is a state-sponsored, tax-advantaged savings account similar to a 529 college savings plan. Key characteristics:

• Tax-free growth: Earnings accumulate tax-free
• Tax-free withdrawals: Distributions for qualified disability expenses are not taxed
• SSI protection: First $100,000 is excluded from SSI's $2,000 resource limit
• Medicaid protection: Account balance does not affect Medicaid eligibility regardless of amount
• Account owner control: The individual with disabilities (or their representative) controls the account

2025-2026 Contribution Limits

*ABLE-to-Work additional contributions are available to employed individuals who do NOT participate in an employer-sponsored retirement plan. Alaska and Hawaii have higher limits ($19,550 and $17,990 respectively).

Lifetime Limit: Total account balance cannot exceed the state's 529 plan limit, which ranges from approximately $235,000 to $596,925 depending on the state plan.

Eligibility Requirements

Age of Onset Requirement

Current Rule (Through 2025): Disability must have occurred before age 26

New Rule (Effective January 1, 2026): Disability must have occurred before age 46

This expansion under the ABLE Age Adjustment Act significantly increases the eligible population by over 6 million people, including:

• Veterans injured during military service (average medical retirement age: 34-39)
• Adults with mental health conditions developed in adulthood
• Individuals with chronic illnesses or injuries acquired later in life

Qualifying Disability

The individual must meet one of the following criteria:

1. SSA Beneficiary: Currently receiving SSI or SSDI benefits based on disability
2. Disability Certification: If not receiving SSI/SSDI, the individual can self-certify that they have:
   • A medically determinable physical or mental impairment
   • That results in "marked and severe functional limitations"
   • That has lasted or is expected to last at least 12 months, or results in death

Important: An individual does NOT need to be receiving benefits to be ABLE-eligible. Employment status and income have no effect on eligibility.

Qualified Disability Expenses (QDEs)

ABLE funds can be used tax-free for expenses related to the beneficiary's disability that help maintain or improve health, independence, or quality of life.

Categories of Qualified Expenses

Broad Interpretation: The IRS interprets QDEs broadly. An expense qualifies if it relates to the individual's blindness or disability and helps maintain or improve their health, independence, or quality of life. The expense does NOT need to be "medically necessary."

Non-Qualified Withdrawals

If funds are used for non-qualified expenses:

• The earnings portion is subject to regular income tax
• An additional 10% penalty applies to the earnings
• The distribution may be counted as income for SSI purposes

Impact on Government Benefits

Supplemental Security Income (SSI)

Important Distinction: When SSI is "suspended" (not terminated), benefits automatically resume when the account balance drops below $100,000. The individual does not need to reapply.

Medicaid

• ABLE account balances are completely excluded from Medicaid resource calculations
• There is no $100,000 limit for Medicaid purposes
• Even if SSI is suspended due to ABLE balance over $100,000, Medicaid continues

Medicaid Payback at Death

Upon the death of the ABLE account beneficiary:

1. Any state Medicaid agency that provided benefits may file a claim against remaining ABLE funds
2. The payback applies only to Medicaid benefits paid after the ABLE account was established
3. Payback occurs after payment of all outstanding QDEs
4. Any remaining funds (after Medicaid payback) pass to the beneficiary's estate

Comparison to SNTs: Both first-party SNTs and ABLE accounts have Medicaid payback provisions, but third-party SNTs do not.

Tax Advantages

Federal Tax Benefits

• No deduction for contributions: Unlike traditional retirement accounts
• Tax-free growth: Earnings accumulate without annual taxation
• Tax-free distributions: Withdrawals for QDEs are completely tax-free
• Gift tax treatment: Contributions are treated as completed gifts eligible for annual exclusion

State Tax Benefits

Many states offer additional tax benefits:

• State income tax deductions for contributions
• State tax-free treatment of earnings and distributions
• Some states match contributions for low-income beneficiaries

529 Plan Rollovers

Families with unused 529 college savings plan funds can roll those funds into an ABLE account:

Rollover Rules

Example: Parents saved $50,000 in a 529 plan for their child who has a disability and will not attend college. They can roll over $19,000 per year (2025 limit) from the 529 to an ABLE account, tax-free.

ABLE vs. Special Needs Trust Comparison

When to Use ABLE vs. SNT

ABLE Account is Best For:

• Smaller amounts (under the annual contribution limit)
• Beneficiaries who want control over their own funds
• Day-to-day disability expenses
• Employment income savings
• Families seeking simplicity and low costs
• Younger beneficiaries building savings over time

Special Needs Trust is Best For:

• Large sums (lawsuit settlements, substantial inheritances)
• Amounts exceeding ABLE annual or lifetime limits
• When avoiding Medicaid payback is important (third-party SNT)
• Complex family situations requiring trustee oversight
• Beneficiaries who cannot manage their own finances

Using Both Together

Many families use both an ABLE account and an SNT:

• SNT: Holds large assets, pays for major expenses, managed by trustee
• ABLE account: Receives annual rollovers from SNT, gives beneficiary independence for daily spending, serves as a "spending account"

This combination provides the best of both worlds: professional oversight for significant assets and personal autonomy for routine expenses.

State ABLE Programs

Each state (or consortium of states) operates its own ABLE program, but individuals can open accounts in any state's program. Considerations when choosing:

• Investment options: Range and quality of investment choices
• Fees: Annual maintenance fees and investment expense ratios
• State tax benefits: Deductions available only for in-state contributions in some states
• Debit card access: Some programs offer ABLE debit cards for easy spending
• Online tools: Account management features and mobile apps