ABLE Accounts Explained! (Should You Open One?)

What is an ABLE Account?

An ABLE account is a tax-free, savings and investment account available to certain individuals diagnosed with a qualifying disability before the age of 26. ABLE accounts are similar to a 529 college savings plan in that earnings used for a specified category are tax-free. The federal tax code allows for ABLE accounts. However, it’s up to each state to set up and administer the program. 

Congress authorized ABLE accounts in the Achieving a Better Life Experience Act of 2014. Before that parents of people with disabilities didn’t have a specific way to save for their children’s future needs, such as occupational therapy.  ABLE accounts are easy to open and there are now over 20 different ABLE accounts to choose from. 

Who is eligible for an ABLE account?

To be eligible for an ABLE account, you need to have developed a qualifying disability before age 26. There is no income limit to be eligible to contribute to an ABLE account.

The beneficiary must also meet one of the following: 

• Have a Compassionate Allowance Condition: There is a list of conditions that are published by the Social Security Administration (SSA).
• Self-certify: The beneficiary can self-certify their disability with a signed diagnosis from a licensed physician. 
• SSI or Social Security Disability Insurance: If you are already receiving benefits from SSI or Social Security Disability Insurance (and your disability started before age 26) then you are automatically eligible to open an ABLE account.

Congress is considering legislation extending the age of the disability onset from 26 to 46. This would likely double the number of people who qualify for an ABLE account.

ABLE Account Contribution Limits 2022

The contribution limit for ABLE accounts in 2022 is $16,000. That’s an increase of $1,000 from 2021.

Owners who work and who do not have access to an employer-sponsored retirement plan can contribute more than the $16,000 limit in 2022. They can contribute up to a maximum of $28,880 in 2022 without impacting their government benefits if they will make at least $12,880 in earnings. This benefit (called ABLE to Work) is set to expire at the end of 2025.

Who Can Contribute to an ABLE Account?

The ABLE account can be funded by anyone. This includes family members, friends, and the individual with a disability. However, the amount cannot exceed $16,000 in total for one year.

ABLE Account Investment Options

You can invest your contributions to ABLE accounts. Most ABLE accounts will have conservative, moderate, and aggressive investment options you can choose from. They will be invested in a mix of stocks and bonds. There is also the cash option if you prefer not to invest your contributions.

Tax Benefits of ABLE Accounts

Contributions to an ABLE account are not federally tax-deductible. 

However, you may be able to deduct your ABLE account contributions in some states, which will lower your state taxes. For example, if you’re a Maryland resident and contribute $2,500 to an ABLE account, you may be able to deduct that entire amount from your Maryland tax return. You can look up whether your state allows for deductions in the ABLE National Resource Center website.

Also, all of the investment earnings are untaxed as long as the money is used for “qualified disability expenses.” 

If any of the earnings are withdrawn for purposes other than “qualified disability expenses” then income taxes and a 10% tax penalty will apply.

What Can an ABLE Account be Used For?

The expenses listed below are all classified as “qualified disability expenses” that you can use your ABLE account money for:

What Are the Advantages of an ABLE Account? 

• The first $100,000 in an ABLE account is not treated as personal assets. This is important because federal law usually excludes individuals from receiving assistance from public benefits programs, like Medicaid and Supplemental Security Income (SSI), if they have more than $2,000 worth of financial assets.
• Contributions can count toward the federal Saver’s Credit (up to $2,000 in ABLE contributions for eligible individuals). This can reduce how much they owe in federal income taxes.
• Tax-free withdrawals for qualified expenses. If the beneficiary uses the earnings from an ABLE account for qualified expenses then that money won’t be subject to income taxes.
• The owner and beneficiary of the ABLE account is the person with the disability.
  

What Are the Disadvantages of an ABLE Account?

• Qualified Disability Expenses. The funds in an ABLE account can only be used for qualified disability expenses. 
• Medicaid Payback. There is a Medicaid payback from the account on funds remaining in the account on the death of the designated beneficiary.
• The disability must have occurred prior to the beneficiary attaining age 26. If you have a disability that occurred after you turned 26, then you would not qualify for an ABLE account. 
• The total assets in the account cannot exceed $100,000.  If the assets in the account exceed $100,000 then the beneficiary’s SSI is suspended. The individual would again be eligible for SSI when the account value drops below $100,000. Fees vary across different ABLE accounts.
  

How to Open an ABLE Account

If you qualify for an ABLE account then you can go to the ABLE National Resource Center’s website. Search for your state and then see if they have an active program and look at the benefits. If your state’s plan doesn’t work for you then you can choose an ABLE account in another state. 

ABLE Account California

California’s ABLE account program is CalABLE.

• Account limit: $529,000 (but you can lose your eligibility for SSI if your account exceeds $100,000)
• Contribution limit: $16,000 annually. However, if you are employed then you can also contribute your annual gross salary or $12,880 more (whichever is less) for a total of $28,880 annual contributions.
• Open to out-of-state residents: Yes
• Investment options: 4 options that vary in risk
• Account fees: There is an annual fee of $37 for a CalABLE account.  The account fees depend on the investment option selected. The total asset-based fees range from 0% to 0.54%.

ABLE Account Maryland

• Account limit: $500,000 (but you can lose your eligibility for SSI if your account exceeds $100,000)
• Contribution limit: $16,000 annually. However, if you are employed then you can also contribute your annual gross salary or $12,880 more (whichever is less) for a total of $28,880 annual contributions.
• Open to out-of-state residents: Yes
• Investment options: 4 options that vary in risk
• Account fees: There is an annual fee of $35 for a Maryland ABLE account. There are also fees on the underlying mutual funds and an administrative fee. These fees add up to between 0.30% and 0.38% of the account’s balance per year.
  

ABLE Account Illinois

• Account limit: $500,000 (but you can lose your eligibility for SSI if your account exceeds $100,000)
• Contribution limit: $16,000 annually. However, if you are employed then you may be able to contribute more. 
• Open to out-of-state residents: Yes
• Investment options: 6 options that vary in risk
• Account fees: There are quarterly fees of $15 for an Illinois ABLE account. There are also annual asset-based fees ranging from 0.30% to 0.33% depending on the risk option that you choose.
  

ABLE Account DC

• Account limit: $500,000 (but you can lose your eligibility for SSI if your account exceeds $100,000)
• Contribution limit: $16,000 annually. However, if you are employed then you may be able to contribute more. 
• Open to out-of-state residents: Yes
• Investment options: 6 options that vary in risk
• Account fees: There are quarterly fees of $15 for a DC ABLE account. The fees per investment options range from 0.34% to 0.37%, depending on which investment option you select.
  

ABLE Account Virginia

• Account limit: $550,000 (but you can lose your eligibility for SSI if your account exceeds $100,000)
• Contribution limit: $16,000 annually. However, if you are employed then you may be able to contribute more. 
• Open to out-of-state residents: Yes
• Investment options: 4 options that vary in risk
• Account fees: Program administrative fee of 0.10% plus asset management fees ranging from 0.11% to 0.17%.

Other Common ABLE Account Questions

• Can I put unused funds from my 529 account into an ABLE account?
  If you qualify for an ABLE account then yes, you can roll over any unused funds from your 529 plan to an ABLE account. You can still use the money for college, or for any “qualified ABLE account expenses.” The rollover amount is limited to $16,000 for 2022.

• Can I have more than one ABLE account?
   No. Only one ABLE account per qualified individual is allowed. 

• Are ABLE accounts audited?
  Yes. The IRS may audit ABLE accounts to make sure that funds are being used correctly. 
  

Start an ABLE Account in 2022

If you qualify then you can open an ABLE account with many state programs. Make sure that you compare the investment options and fees to find the one that’s the best fit.