Those living with disabilities often incur significant costs. This not only includes medical care not covered by insurance, but also transportation, personal assistance services, and assistive technology. Many rely on public assistance, such as SNAP, SSI, and Medicaid, but eligibility in those programs means that recipients must have minimal income and resources. Thankfully, there is a type of savings account that can help disabled persons remain eligible for these programs and also help them save for future disability-related expenses. It’s called an ABLE account.
What is an ABLE Account?
Created as part of the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 (ABLE Act), an ABLE account is a tax-advantaged saving account specifically for disabled persons and their families. Under the ABLE Act, each state is authorized to establish a program that offers tax-free savings and investment options to help disabled individuals and their families save money to help fund healthcare needs, foster independence, and create a quality of life.
Money placed in an ABLE account is typically not counted when determining eligibility for federal benefit programs, such as SSI and Medicaid. Additionally, the account owner is also the account beneficiary and any income earned by the account is not taxed.
Under the ABLE Act, eligibility for an ABLE account is limited to individuals who became disabled before age 26. That doesn’t mean, however, that you must be younger than 26 to be eligible. You can be over 26 as long as the onset of your disability was before your 26th birthday. Those who meet the disability age requirement and also receive benefits under SSI and/or SSDI are automatically eligible.
You may also qualify if you don’t receive SSI or SSDI (but meet the age requirement) if you have a letter of disability certification from a licensed physician and meet Social Security’s criteria regarding functional limitations.
Annual Contribution Limit
Currently, the maximum annual contribution for a single tax year is $17,000 (2023), which is the same as the gift tax exclusion. This includes contributions made by the account owner, as well as any family members or friends. If you are employed and not making any contributions to certain retirement plans, you may contribute additional funds equal to the lesser of your annual income or the individual federal poverty level for a one-person household in your state for the previous calendar year. For 2023, that’s $14,580 (continental U.S.), $18,210 in Alaska, and $16,770 if you live in Hawaii.
The total lifetime contribution limit varies by state and ranges between $235,000 and $550,000. The state lifetime limits are based on each state’s limit for education-related 529 savings accounts.
If you receive SSI, however, you’ll have additional limitations. Under the ABLE Act, the first $100,000 in ABLE account contributions is exempted from the $2,000 SSI resource limit. If your account exceeds that limit, your SSI cash benefit will be suspended. Fortunately, your eligibility for Medicaid is not affected.
Qualified Disability Expenses
Per the IRS, qualified disability expenses may include:
- Legal Fees
- Prevention and Wellness
- Financial Management
- Employment Training and Support
- Assistive Technology
- Personal Support Services
- Funeral and Burial
If the money in your ABLE account is spent on any of these qualified expenses, the earnings on the money withdrawn are tax-free. Just be sure to keep a copy of your receipts and/or invoices for your records in case the IRS or Social Security Administration requests documentation to support your withdrawal(s).
Section 529 Plan Rollovers and Transfers
Families that have a 529 plan may roll over funds to another family member’s ABLE account. Keep in mind that the ABLE account beneficiary (owner) must be the same as the 529 plan or a member of the same family as the 529 account holder. Any rollover amount counts toward the annual plan limit ($17,000).
Saver’s Credit Eligibility
As an ABLE account designated beneficiary, you may also be eligible to claim the Saver’s Credit for a percentage of your contributions. This non-refundable tax credit is available to taxpayers who meet the following three requirements:
- At least 18 years old at the end of the tax year;
- Not a dependent or full-time student; and
- Meet the income requirements.
To take the credit, you must complete Form 8880, Credit for Qualified Retirement Savings Contributions, and include it with your tax return. The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly). Rollover contributions do not qualify for the credit.
Want to Learn More?
To learn more about the ABLE Act or to find ABLE programs in your state, visit the ABLE National Resource Center website for additional information.